Step One Clothing Ltd (ASX: STP) shares are sinking again on Friday.
In morning trade, the ASX stock is down a further 6.5% to a new 52-week low of 28 cents.
This latest decline means that the online underwear seller's shares have now lost almost 80% of their value since the start of the year.
Is this a buying opportunity for investors? Let's see what analysts at Bell Potter are saying about the beaten down stock.
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What is the Bell Potter saying?
Bell Potter was very disappointed with Step One's trading update this week, which revealed a sharp decline in sales, a significant inventory write-down, and an expected first half EBITDA loss.
In response, the broker has taken an axe to its revenue and earnings estimates through to FY 2028. It explains:
We downgrade our revenue forecasts by 32%/36%/41% in FY26/27/28e, driven by slowing customer growth and anticipated lower basket sizes. We adjust gross margin expectations, factoring in the $10m inventory provision in 1H26e, and pullback longterm gross margins to ~70% given what we expect will continue to be a promotion reliant growth strategy to win new customers. As a result, our EBITDA forecasts have decreased by -207%/-78%/-68% in FY26/27/28e respectively, and see long-term margins revert to high single-digits from previous low-teens.
ASX stock downgraded
According to the note, the broker has downgraded the ASX stock from a buy recommendation to neutral with a heavily reduced price target of 30 cents (from 85 cents). This valuation is largely in line with where Step One's shares trade today.
Commenting on the online retailer, the broker revealed that it is cautious on its outlook and fears that its opportunities in the core Australian market are now limited. It said:
We downgrade to a Hold recommendation, and our Price Target decreases 65% to $0.30/share (from $0.85/share) driven by our earnings revisions. We maintain our target EV/EBIT multiple at 5.4x, at a 25% discount the peer group median, and continue to value the business on a blend of relative valuation and DCF (WACC 11% and TGR 3%).
We are cautious on the outlook for STP given we believe its core Australian market (~63% of revenue) has matured with customer growth avenues limited. We also note that given the size of the inventory write-down, this could indicate a "nip in the bud" approach but given the slow-down in the November period, we remain cautious on future inventory turnover. We continue to be positive on its UK business as the key driver for new customer growth going forward.
