Market Observation: Boohoo shares highlight market inefficiencies

Two online fashion retailers revealed vastly contrasting trading updates today, yet shares in both still headed in the same direction.

ASOS announced a planned trading update for the three months to 30 November 2018, stating that sales growth was 14% during the period, but revealed that November saw a ‘significant deterioration’ and revised full year guidance for sales growth from 20-25% down to 15%. As a result shares have plummeted and at the time of writing are lower by almost 40%.

As a further sign of generic sector weakness, the market used this information to similarly jump ship from the shares other high street and online retailers and following a sharp decline at the open the board of felt the need to stabilise its share price with an emergency trading update of its own. In stark contrast to both ASOS and other recent retailer updates, announced that recent trading performance remained strong, including record Black Friday sales and most importantly that it continues to trade ‘comfortably in line with market expectations’.

However, at the time of writing shares in remain approximately 12-13% lower at 160p as the market appears to focus on the negative update from its rival than its own positive one. This is a great example though of the irrational and indiscriminate nature of the stock market at the moment, fuelled by fear and uncertainty.

Today’s movement in may in time prove to be right, but the behaviour of many shares is at present frequently uncorrelated to their operational performance or news flow. Whilst now may not necessarily be the right time to take advantage, current market dynamics and behaviour are hopefully creating more opportunities at individual stock levels for attractive entry levels than is normally the case.


Image attributed to:  17/12/2018

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