Zalando shares: The H&M effect | The variegated fool Germany

With Zalando-Akt (WKN: ZAL111) went down again on Thursday this week. A drop of over 6% and a share price of EUR 19.42 shows that the online retailer in the fashion sector has not yet bottomed out. Many investors may not have believed that the 20 euro mark could be broken.

On Thursday there were stressful things. You can probably talk about an H&M effect that affected the entire industry. However, we must not forget that it is only an indicator. Possibly one among many.

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Zalando share: The H&M effect!

This had a negative effect on the Zalando share HM did not live up to market expectations. There were one-off effects that caused the operating margin to collapse from 53% to just 49%. But also increased costs for logistics and materials as well as a lower interest in buying. It actually led to a 4% year-over-year bottom line sales decline.

H&M is an indicator for the industry as a whole. The Swedish fashion chain with its huge reach is considered an indicator related to the fashion industry and the interest to buy. Regarding Zalando, the market seems to assume that momentum and operational growth will be less evident here as well. This already reflects the forecast for the e-commerce player with an expected stagnation in sales or even a moderate decline.

The Zalando share is made difficult by the fact that H&M is not the only player on the market with this perspective. That too VF Corporation recently adjusted the annual targets. The dampening consumer sentiment is having an effect on the numbers, as they say. This also led to a recent significant sell-off in the actually popular dividend stock.

My take: the fashion industry is having a tough time

There may still be tough times ahead for Zalando shares. This is what we should take away as investors. In any case, the current market situation is characterized by inflation and poor consumer sentiment. An operationally declining business for many players in the market seems to be a plausible risk.

Nevertheless, the valuation of Zalando shares is now very cheap. A price-to-sales ratio below 0.5 reflects some pessimism. Should the e-commerce player return to 2021 earnings per share of EUR 0.91 in one, two, maybe three or four years, the price/earnings ratio would be slightly above 20. I believe that with a net margin of 2% in the long term (and again with some growth, sooner or later) a solid return may be possible. All we have to do is get through this tough market if we believe the fundamental growth story.

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Vincent owns shares in VF Corporation and Zalando. The Motley Fool owns shares in and recommends Zalando.

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