Zalando share price could plunge to €20 if this happens

Zalando (ETR: ZAL) share price has been in a strong freefall as growth slows and demand for the stock eases. The stock retreated to €24.60 on Wednesday, ~77% below the highest level in June 2021. It has fallen by over 24% this year, making it the second worst-performing DAX index constituent this year after Siemens Energy.

Growth concerns remain

Zalando is a leading company that provides e-commerce solutions for fashion and lifestyle. Like other similar companies like Asos and Boohoo, Zalando business peaked during the Covid-19 pandemic as people were shopping online.

The most recent results by Zalando showed that its business was slowing. Its revenue dropped by 2.5% in the second quarter to €2.5 billion as its Gross Merchandise Volume (GMV) slipped by 1.8% to €3.71 billion.

Additional data shows that Zalando’s number of active customers rose from 49.3 million in Q2’22 to 50.5 million in Q2’23. The average order size also rose slightly to €293.3. In all, its EBIT rose by 42.2% to €86.8 million while its profit rose to €56.6 million. For the first half of the year, Zalando’s net profit was €18.2 million.

The biggest concern for Zalando is that its business is slowing as the German and European economies face numerous headwinds. The most recent economic numbers showed that the German economy contracted in the first two quarters of the year. Consumer confidence has also eased in the past few months.

Therefore, the falling sales means that Zalando should not be valued as a growth company. And despite the decline of the shares, the company is still overvalued. For one, Zalando has a market cap of over €6 billion, which is higher since the company’s adjusted EBIT dropped to €184.6 million in 2022.

The daily chart shows that Zalando stock price has been in a strong bearish trend in the past few months. It remains below the descending trendline shown in red. This trendline connects the highest levels since March 7th. The stock has moved below the 50-day and 25-day moving average. It has also retested the ascending trendline that connects the lowest swing since September last year.

Therefore, the outlook for Zalando is still bearish, with the next level to watch being the psychological level at €20. This view will be confirmed if it flips the support at €23.87 (July 7 low) into a resistance. The alternative scenario is where the shares bounces back and retests the upper trendline at €28.