On Wednesday, Goldman Sachs (NYSE:GS) adjusted its stance on ZOZO, Inc (3092:JP) (OTC: SRTTY), downgrading the stock from Buy to Neutral, despite increasing the price target to JPY5,200 from JPY3,600. The investment firm noted that while ZOZO's fundamentals for fiscal years 2025 to 2027 appear strong, and the company's capacity to generate robust cash flow has enhanced shareholder returns, these positive aspects are already reflected in the current stock price.
The company's performance has been notably strong in the stock market. Since Goldman Sachs initiated coverage with a Buy rating on December 4, 2020, ZOZO's shares have appreciated by 110%, a significant outperformance compared to the TOPIX's 49% increase as of October 22, 2024. This growth is attributed to several factors that have favored ZOZO in the marketplace.
The analyst pointed to the continued expansion of online apparel purchases even after the economy reopened following the pandemic. This trend has been a key driver of the company's success. Additionally, ZOZO has become a top-of-mind choice for many consumers when shopping for apparel, which has contributed to its market outperformance.
Improvements in cost efficiency have also played a role in ZOZO's growth. An increase in the average order value has helped the company streamline its operations and boost profitability. Furthermore, the company's strategic decisions to enhance shareholder returns have been well-received by investors, adding to the stock's appeal.
The inclusion of ZOZO in the Nikkei 225 is another factor that has likely spurred investor interest in the company. The prestigious index is often seen as a benchmark for the Japanese stock market, and inclusion can lead to increased visibility and investment in a company. However, with these positive developments now factored into ZOZO's stock price, Goldman Sachs sees limited upside, prompting the downgrade to Neutral.
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