This smashed up ASX tech stock could rebound 100%+!

Investors sold off this stock this week. Bell Potter sees this as a buying opportunity.

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It certainly has been a tough week for the Cettire Ltd (ASX: CTT) share price.

Since the start of the week, the ASX tech stock has lost over 50% of its value.

Why has this ASX tech stock been sold off?

Investors have been selling off the online luxury products retailer's shares in response to the release of a trading update.

Cettire warned that "the operating environment within global online luxury has become more challenging" with heightened levels of discounting.

In response to these difficult operating conditions, management "has selectively participated in the promotional activity, leading to an increase in marketing costs relative to sales and a decline in delivered margin percentage."

This appears to have spooked investors, who may now believe that this marks an end of the ASX tech stock's explosive sales and earnings growth.

Broker says buy the selloff

Analysts at Bell Potter were not overly impressed with Cettire's trading update. Commenting on the update, the broker said:

Cettire (CTT) provided a FY24 trading update (Apr-Jun) and sales revenue of $735m745m (FY +78% on pcp and 4Q +54% on pcp) was broadly in line with BPe, however Adjusted EBITDA of $32-35m was a material miss to BPe/Consensus ($44m). We note that the current trading in the seasonally key 4Q has been impacted by the intense promo environment during the Northern Hemisphere Spring/Summer '24 sales period from mid-May leading to challenging product margin outcomes (BPe ~32% for 2H24). The direct platform in mainland China was also launched ahead of the end of 4Q24.

While our topline assumptions remain largely unchanged, we see continuing pressure on 1H25 product margins in achieving a BPe ~26% net revenue growth for FY25e until the industry stock levels and promo intensity normalise over the coming months. We believe that the timing of recovery would be dependant on the ongoing industry consolidation at present given the exit of some players and overall consumer demand.

However, the broker appears to see the selloff that ensued as an overreaction.

Major upside potential

In response, Bell Potter has reaffirmed its buy rating but cut its price target by 35% to $2.60 (from $4.00).

Despite this valuation cut, it still suggests that the ASX tech stock could more than double in value from its current share price of $1.12.

Its analysts conclude:

Our PT decreases 35% to A$2.60 (prev. A$4.00) driven by our earnings revisions and a reduction to our target multiple (12x vs prev. 13.5x). Despite a weak trading update, CTT continues to perform relatively better than peers in the luxury industry and we believe that CTT's ability to outperform far outweighs luxury e-comm peers. While the market consolidation continues across large to smaller players, CTT's sub-1% market share and flexibility in the drop-ship inventory model highly supports growth. At our downgraded PT of $2.60, the TER is >100% so we maintain our BUY rating.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cettire. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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