Morgan Stanley hates the ASOS stock

A model walks on an in-house catwalk at the ASOS headquarters in London April 1, 2014.GettyMorgan Stanley think ASOS’s international business model is flawed

Investors are overestimating the value of online fashion website ASOS and shares should be worth half their current value, according to Morgan Stanley.

The bank’s retail team this morning put out a sell note on the company, setting a target price of 1800p compared to yesterday’s closing price of 3618p.

Analysts think the market is underestimating the problems ASOS faces expanding internationally.

Last year, the company put out three profit warnings and shares fell 60%. But so far this year, ASOS has rallied 40% and many investors believe the company has put its troubles behind it.

Morgan Stanley thinks the stock should have stayed at its cut price level, arguing ASOS’s international business model is fundamentally flawed. The company buys clothes in the UK and then sells them abroad, meaning it could be hit badly by exchange rate fluctuations.

The bank says:

We see limited potential for ASOS to become a ‘winner’ in markets further afield… although we believe ASOS should benefit somewhat from scale and operating leverage, we see this offset by a required increased investment in price and its customer proposition.

Morgan Stanley prefers German rival Zalando to ASOS. So far investors haven’t reacted, with ASOS up 1.4% at the time of writing.

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