Investing.com — Inditex (BME:ITX), the parent company of Zara, saw its shares fall over 2% on Thursday after RBC Capital Markets downgraded the company’s rating to “underperform” from “sector perform.”
Analysts cited valuation concerns and moderated growth expectations for the downgrade. RBC flagged that while Inditex remains a strong player with an exceptional business model, its current valuation appears stretched.
The company trades at a price-to-earnings ratio of approximately 25 times its estimated 2025 earnings, which RBC deems “full” compared to its peers.
The brokerage also reduced its price target for Inditex to €50 from €52, indicating limited upside potential from the current share price.
Inditex recently reported softer-than-expected third-quarter results, prompting RBC to revise its earnings forecasts for the fiscal years 2025 and 2026 downward by 2-4%.
Factors such as a strong sales base, headwinds from USD sourcing costs, and constrained operating expense leverage contributed to these adjustments.
The retailer is also grappling with challenging market conditions in Asia, particularly China, and adverse foreign exchange impacts in markets like Mexico and Brazil.
Despite these challenges, RBC said that Inditex’s strengths, including its efficient supply chain, quick response business model, and dominant market share in Spain and parts of Europe.
However, the brokerage warned that Inditex’s sales growth might moderate further, with next year’s expected growth potentially falling below market forecasts.
