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In the world of online fashion retail, Zalando's stock has been experiencing a rocky journey, despite recent signs of stabilisation and analyst optimism. Despite a temporary surge last week, the company's shares have given up some of their recent gains on Wednesday, trading at 28.65 euros, making it one of the weakest stocks in the DAX.
The recent price weakness and June losses have been a significant concern for investors. Zalando shares have underperformed, with a double-digit percentage loss in June, which has kept the stock near the bottom of the DAX index despite a 3% rise early in July.
Valuation concerns and market caution are also weighing on the stock. Although some analysts, like Jefferies, see Zalando as a top European online fashion retailer with underestimated margin potential and growth prospects, the stock price still trades at a premium to peers (around 29x vs. industry average of 14x), making it expensive relative to its sector. This premium can cause caution among investors who may be waiting for stronger proof of sustained profitability and margin expansion.
Recent quarterly earnings have also added to the market hesitation. Although margins and returns are positive, Zalando's modest EPS of $0.02, below some expectations, and slightly missing revenue forecasts, may have contributed to this cautious stance.
However, long-term positive forecasts, such as Jefferies' projected strong earnings per share growth (25% CAGR from 2024 to 2028) and operating profit 3–7% above consensus, offer a glimmer of hope for Zalando's future. Yet, the market often focuses on near-term results, which have not yet fully reflected this optimism.
This imbalance between long-term positive forecasts and short-term market caution explains why Zalando's shares are considered weak even amid analyst enthusiasm and recent stabilisation. The recent approval of the takeover of About You by the EU Commission and the operational integration of the competitor is also highlighted as a greater risk by Deutsche Bank analyst Adam Cochrane.
Despite the challenges, some analysts, including Deutsche Bank, recommend buying Zalando's stock and have a price target of 38 euros. If the stock manages to break above the 38-day line and the medium-term downtrend, the chart picture for Zalando would significantly improve. However, until then, the company's stock will continue to face a complex market landscape.
Investors are troubled by the stock's recent price weakness and June losses, which have led to a double-digit percentage loss for Zalando, causing it to remain near the bottom of the DAX index. Despite the premium price and recent earnings that have added to market hesitation, some analysts, like Deutsche Bank, still recommend buying Zalando's stock and have a price target of 38 euros, suggesting a potentially improved chart picture for the company if it manages to break above its 38-day line and medium-term downtrend.
