Watch The Stock Of This Online Retailer Who Wants To Become The Amazon Of Fashion

Zalando (ticker: ZAL.Germany) aims to achieve what Amazon AMZN +0.40%.com did for books two decades ago by cracking the code for online sales.

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Online clothing sales are a little more challenging. There are still a lot of people who like to buy them in person because they like the feel, the fit, and the small details so much. Online purchases are more likely to result in returns, mainly because you are not able to try them on before making a purchase.

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To address this problem, Zalando aims to become the go-to platform for consumers, retailers, and fashion brands. Over 6,500 international brands are currently represented by Zalando in 25 countries throughout Europe. It shares logistics with partners, just like Amazon does. The company also sells its own private-label clothes under its own brand.

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During the next fiscal year of 2024, Anne Critchlow, an analyst at Societe Generale, predicted that the online apparel market in Europe will once again grow faster than the market for physical stores. “We think that Zalando will continue to dominate the online market in the future as it has done in the past, given the breadth of its platform and the fact that it offers free shipping and returns on all orders.”

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Due to its refusal to undercut competitors on prices, Zalando has the potential to build bigger margins than its competitors. According to Critchlow, the company is a disruptive player in the market because of its wide choice of products, the convenience of one-stop shopping, and superior online service.

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Zalando, the Berlin-based company with a market value of over €10 billion, sells a variety of products such as shoes, clothing, and accessories. Currently, the company is valued at a premium of 60% compared to its peers and fetches 60 times this year's expected earnings. An analyst at Bryan Garnier in Paris named Clement Genelot said that Zalando's price-to-earnings ratio is high because it has low margins so far and it has the willingness to reinvest profits for future growth, which is contributing to its high price-to-earnings ratio.

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There has been a 22% increase in the share price over the past three months to €38.33. A factor set analyst's average target price is €45.29, which implies a nearly 20% increase in the price of the stock over its current price. The stock is rated as Buy by thirteen analysts, Hold by seven, and Underweight by one, with one analyst rating the shares as a Buy.

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Since its launch in 2008, Zalando has had a crazy ride through the pandemic. Its share price boomed during lockdowns, as well as its demand. There was a dramatic cooling down in 2022 as economies opened up to the possibility of physical interaction. In mid-2021, shares reached as high as €100 before falling to as low as €20 in September of last year.

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It was announced last month that Zalando will be reducing its workforce in an effort to keep its costs in check. "Zalando's 5% layoff plan, the first in its history, is a surprise but highlights the group's willingness to pivot from 'growth-at-all-costs' to profitability as outlined by Clement Genelot, an analyst with Bryan Garnier in Paris who rates the shares a Buy with a price target of €50 for the company. "This welcome shift is one of the most important factors in making our investment case."

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There will be a great deal of dependability on European consumers when it comes to the future of Zalando. In the same way, as in the U.S., shoppers are dealing with what is the fastest inflation in 40 years, as well as higher energy costs. In the first half of 2022, consumer confidence plummeted, but it began to recover in the second half of the year. We have not seen the worst-case scenario for winter-energy shortages and rolling blackouts due to the loss of supplies from Russia after it invaded Ukraine-and unemployment is still low despite the supplies being lost from Russia.

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Even though the European Central Bank has raised interest rates faster than the Federal Reserve in recent months, the economy has held up much better than expected so far as a result.

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There has been a 60% drop in Zalando's earnings in 2022, according to the company. However, the company's CEO, Robert Gentz, painted a positive picture for the company's future on March 7 when he highlighted that it expects to get to the top end of its 3% to 6% target range by 2025 and that it sees double-digit margins in the long run as well.