Home Stock Market How much further can the Boohoo share price fall? – The Motley Fool UK

How much further can the Boohoo share price fall? – The Motley Fool UK

by callingemout
Dice engraved with the words buy and sell, possibly in FTSE 100

As a committed value investor, Boohoo (LSE: BOO) represents my first and, to date, only foray into growth stocks. Since buying the stock a few months ago, I have seen the value of my investment plunge, which is never a great feeling for any investor. My dilemma is whether its crashing share price represent a good opportunity to double down or a falling knife with still a long way to drop?

A broken business model?

Boohoo’s innovative value-driven business model has certainly taken the fashion world by storm. Its approach of manufacturing small quantities of a wide range of clothes and scaling production for those that sell well, has been a hit. With fashion constantly changing, the company has profited handsomely from image-conscious teenagers and millennials. The company’s ‘test and repeat’ model has also enabled it to minimise financial losses on products that, for whatever reason, don’t sell.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Click here to claim your free copy now!

But then problems emerged. It began with the findings of a report commissioned by the company that concluded Boohoo knew of poor working practices in its supply chain long before the scandal hit the headlines. This was followed by the class action lawsuit in the US accusing it of misleading promotions in California.

Pressure continued to mount on the firm when it issued a profit warning in December citing rising supply chain inflation, high returns and air freight restrictions leading to 10-day delivery times to the US, a key growth region.

It is this last issue that has caused most concern for me. The company believes the problems are primarily related to the pandemic and therefore “transitory in nature”. I am not so sure. Its entire value proposition, popularised in the words ‘fast fashion’, is based on price. With inflation beginning to really take hold in the economy, it is likely that discretionary spending could fall.

Long-term potential

Yet while short-to-medium-term headwinds will stunt Boohoo’s growth, I maintain that the prospects for the company on a longer-term horizon remain favourable. As its US distribution centre comes online in 2023, that should help improve sales in that fast-growing market. However, that may take some time to materialise, as there will be a clear need to invest in marketing to make up lost ground.

I am also pretty excited about its growth potential from the brands it acquired out of administration last year. The standout purchase was Debenhams. Here, it wants to transform a leading fashion and beauty retailer into a digital department store and marketplace through a new capital-light and low-risk operating model. The company has already began working on the digital platform that will support this acquisition. If it can execute on its strategy here, then I see huge potential for future growth.

Buy, sell or hold?

The short-term fate of Boohoo will very much depend on its trading update next week. If returns remain stubbornly high or it has failed to meet its revised sales growth targets from December, then I expect the share price to fall significantly. Either way, given the uncertainty in the pace of economic recovery together with rising inflation, I expect the share price to remain under pressure for some time. Therefore, for now, I am in no rush to buy more but I will not sell either. I am holding.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Andrew Mackie own shares in Boohoo. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Source link

You may also like

Leave a Comment