An unfashionable stock

boohoo (LSE: BOO) is one of the UK’s biggest fashion retailers. The online fashion retailer had already been 30% down this year, but plunged a further 12% after it released its FY22 results. Nonetheless, it’s managed to recover most of its post-earnings loss since then.

The firm had already been starting to see a slowdown in sales growth due to “Significantly longer customer delivery times as a result of the pandemic”. Nevertheless, its new distribution centre in the US is expected to go live in mid-2023. With next day and two-day express delivery options available, this could help ease the supply chain constraints that boohoo is currently facing, and help the stock price.

However, with inflation continuing to weigh on consumer spending, I expect sales growth to continue declining. Management shares my sentiment too, as guidance for FY23 is for low-digit revenue growth. Expensive freight costs have also impacted its bottom line as the firm saw its profit margin decline from 5.2% in FY21 to -0.2% in FY22. For that reason, I won’t be buying this stock for now.

In the eye of the storm

The unfortunate events of the Russia-Ukraine skirmish has battered the Ferrexpo (LSE: FXPO) share price. Commonly known for being a high-dividend yield stock, the stock is now trading at 65% off its all-time-high.

The Ukraine-focused firm faces a large amount of uncertainty given the ongoing war there. Any further escalation might run the company out of business as its mining operations are located just east of Kyiv, where it’s more susceptible to Russian attacks. Additionally, China’s city-wide lockdowns have driven iron ore prices down. This will inevitably impact Ferrexpo’s top line in the near to medium term. Most importantly, the firm decided to defer its dividend payments. The board said that it will continue to assess the situation in Ukraine and make a decision on dividends when appropriate. With many investors initially buying the stock for its dividend, this is a stock I’m avoiding.

Getting the boot

Aside from sky-high inflation, Dr Martens (LSE: DOCS) will also have to worry about the recent retail sales figures. Although positive for the month of April itself, retail sales for the three months to April fell 0.3% as high inflation hurt purchasing power. That’s one reason why its stock is down 50% this year.

The majority of the firm’s revenue stems from the Americas and EMEA region. With inflation continuing to spiral out of control, this doesn’t bode well for Dr Martens’ near-term outlook. As central banks in these regions rush to raise interest rates, its debt levels start to become even more alarming. The firm has a debt-to-equity ratio of 140%, a declining free cash flow, and higher operating expenditure. These aren’t factors that are favourable when I invest in UK stocks, especially in a high interest rate environment. As such, I’ll be looking to purchase other shares with much more favourable fundamentals.

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John Choong has no position in any of the shares mentioned at the time of writing. 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.

Coating its pockets

The first thing I look at before I invest in any company is its balance sheet. boohoo’s balance sheet is rather healthy, with a 10.4% debt-to-equity ratio and enough cash at £70m to make up for its £50m debt. Its assets also sufficiently cover its liabilities, which is always a good sign. However, boohoo has taken on debt in its most recent half while also having its cash position cut almost in half. According to management, this was done to offset an increase in capital expenditure (Capex) as the company invests more in facilities to scale its growth prospects.

boohoo growth

boohoo reported that its net sales were up 10% in its most recent quarter. Active customers, orders, and order frequencies all saw an increase as well, but with that also comes a fly in the ointment. For starters, all regions bar the UK saw declines in growth. This was due to “Significantly longer customer delivery times as a result of the pandemic”, as international sales are fulfilled through its UK production line. But although customers and orders continue to grow, the average order value and items per basket have seen a decline, thus impacting quality earnings.

Moreover, boohoo has been experiencing declining annual sales growth. Its growth rate has seen a steady decline from 48% in 2019 to 41% in 2021. Furthermore, its profit margin has gone down from 5.5% in 2019 to 3.1% in its latest half. This shows me that the retailer is struggling to keep up with rising costs as inflation continues to run rampant. Primarily, carriage, freight, and labour have seen the biggest uptick in costs, with the AIM company expecting the drag to continue for the rest of the year. Nevertheless, investors will be hoping that the new US distribution centre set to open in 2023 will help ease the firm’s current supply chain constraints.

Nevertheless, investors will be hoping that the new US distribution centre set to open in 2023 will help ease the firm’s current supply chain constraints.

Hoo’s the future?

On the one hand, boohoo’s exciting ventures into the NFT and metaverse space could be a game changer if it succeeds. Its aggressive marketing strategy also shows the firm’s commitment to grow its sales numbers. Not to mention, it is investing more in automation in order to offset rising labour costs.

On the other hand, boohoo does face strong headwinds. Sky-high inflation has forced central banks to increase interest rates, and this has had a stifling impact on companies’ growth prospects. People are less willing to borrow and spend money at higher interest rates. This is evident in the latest GDP figures, which showed a decline in economic growth. The latest retail sales numbers did not look very promising either, showing a contraction.

While the boohoo share price looks reasonable at its current valuation, declining sales growth, spiralling costs, and a stalling economy, do not justify the opportunity cost for me to invest in boohoo. Therefore, I do not see this as a favourable climate for me to buy the shares for my portfolio.

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John Choong has no position in any of the shares mentioned at the time of writing. 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.

Bearish trajectory

I think there are two main reasons why the Boohoo share price is falling. Firstly, the company has seen a number of allegations about underpayment of workers in its supply chain. In December 2020, the Guardian reported that in a Pakistani factory, workers were paid just 29p an hour to manufacture Boohoo garments. Similar cases have plagued Boohoo throughout 2021.

In addition to this, the company is fighting a £100m lawsuit over misleading advertising. I think the constant ESG battles Boohoo seems to face is beginning to turn investors sour. Unless it can begin to solve these issues, I think the Boohoo share price has further to fall in the future.

Secondly, the spike in growth for 2020 seems to have slowed throughout 2021. I would expect this to be the case, as pandemic restrictions ease and people spend more time in physical stores rather than shopping online. Boohoo reported a 40% rise in revenues for 2020. However, the growth forecast for 2021 is 25%. I think this is another reason the Boohoo share price has been falling in recent months.

Reasons to be optimistic

That being said, there are a number of reasons why I think the Boohoo share price could rise in the near future. The company’s net cash position looks healthy at just under £200m, which is encouraging, considering its recent acquisitions that have included Karen Miller, Oasis, Debenhams, and Dorothy Perkins. These acquisitions also help Boohoo add vital market share, which will help ward off competition and increase revenues.

Despite this, the group’s margins have stayed strong. Revenues rose from £195m in 2016 to £1.4bn in 2020. Over the same five years, profits rose from £15m to £91m representing margins of just under 10% in both years. This shows me the firm can stay consistently profitable, even while massively scaling up operations. This fact, coupled with the recent acquisitions, gives me confidence for the future of the share price.

Boohoo share price: The verdict

If Boohoo can get some of its ESG problems in check, I think the group has a bright future ahead of it. The current P/E ratio of Boohoo is 29.5, which is over half its five-year average. Therefore, I think the current Boohoo share price offers some good value.

For me, the fact that margins have stayed in check despite the ambitious expansion, is the most encouraging factor. This coupled with a historically lower valuation makes me think Boohoo could be one of the hottest UK retail stocks to add to my portfolio today.

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Dylan Hood has no position in any of the shares mentioned. 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.

Doubling my ISA: what will it take?

To double the value of my portfolio, I need to achieve an annualised return of around 15%. In other words, I need my capital to grow 15% in 2021, another 15% in 2022, and so on. This is how things would look if I used the nominal sum of £1,000.

Compound interest really is a wonderful thing. And this doesn’t include the impact of any reinvested dividends!

So, how do I hit this target?

Clearly, being invested in the best stocks helps. But what makes a company better than others? Everyone will have an idea about this.

A ‘meme stock’ investor would say that AMC Entertainment and GameStop would qualify. I respectfully disagree. Their share prices have certainly ‘popped’ in 2021 but have since flagged. They’re best left to traders, in my opinion. 

Personally, I don’t think I need to take on such risk to get a 15% annualised return. For me, the best ISA stocks are those that are leaders in niche markets, boast fantastic brands, have strong growth potential, and/or generate great returns on the money they invest. I think I have several in my portfolio already. These include kettle appliance maker Strix, equipment manufacturer Somero Enterprises, and online behemoth Boohoo. 

But let’s take a step back here. The fact that something is achievable does not mean it will happen, of course. Let’s briefly look at what things could stop me from achieving my goal.

What could go wrong

Unfortunately, there’s no guarantee my ISA stocks will perform. Last week alone showed just how unforgiving other investors can be with the share prices of Best of the Best and Avon Protection being pummelled. Both have previously scored highly on the things I usually look for.

Even if the companies I own do very well, they could still be held back by general market jitters. These days, investors are getting increasingly worried about rising inflation, for example. And even if this does prove ‘transitory’, there will always be another potential setback waiting in the wings to knock confidence. 

How I can improve my chances

Aside from hoping my stock-picking is on form, there are four other things I think I can do. 

1) Keep investing. This includes periods in which markets head south. It sounds simple but it’s harder to do in practice.

2) Go small. Smaller companies have the ability to grow at rates larger companies simply can’t. This can often lead to a huge uplift in share prices. 

2) Use up my ISA allowance. As well as continuing to invest, it would also be a good idea to use my £20,000 ISA allowance in full. The more money I put to work, the greater the potential impact of compounding.

3) Avoid frothy markets. A final, debatable point is that it might make sense to avoid markets (and companies) where valuations are looking stretched. Having more than doubled over the last year, the US market looks a little too hot to me right now. 

The post How I plan to double my Stocks and Shares ISA in 5 years appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Strix, Somero Enterprises and boohoo group. The Motley Fool UK has recommended Avon Protection, Somero Enterprises, Inc., and 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.

Sales soar (again)

Total revenue across all three of the company’s brands rose 39% to 254.3m in Q1.

Interestingly, PrettyLittleThing contributed 44% of this amount (£112.1m) — only slightly less than that achieved by Boohoo’s eponymous brand (£123.5m). Sales at the former jumped 42% compared to the latter’s 27%, demonstrating just how well the company is managing to grow previous acquisitions.

At 153%, the company’s third brand — Nasty Gal — achieved the biggest growth in revenue but still contributed only a small amount (£18.2m). 

Importantly, sales rose in all parts of the world in which Boohoo operates. The UK remains its biggest market, but sales in the Rest of Europe were up 72% to £38.2m and 64% to £51.3m in the USA. 

Taking this into account, I suspect Boohoo may end up beating its guidance on full-year revenue growth of somewhere between 25% and 30%. 

Over the reporting period, the AIM-listed company also purchased the brand and intellectual property assets of online womenswear retailer MissPap for an undisclosed amount. 

Despite this outlay, Boohoo’s finances continue to look rock solid with a net cash position of £194m by the end of May — 29% more than at the same point last year. 

Perhaps the only bit of ‘bad’ news was the slight reduction in gross margin from 55.2% to 55%, which may explain the share price reaction.

As always, however, Boohoo remains an expensive stock to buy, trading on an eye-popping 46 times earnings before today’s figures were announced.

As such, I feel it’s worth reminding Foolish readers that anything less than perfect delivery from new CEO John Lyttle and his team going forward could see the shares hammered.  

Profit warning woes

Whether the high expectations of Boohoo’s investors make it a risky buy or not, no one could argue that today’s numbers weren’t a world away from those released by Ted Baker (LSE: TED) yesterday, as covered by my Foolish colleague Roland Head. 

Like Roland, I do not believe that the departure of founder Ray Kelvin can be blamed for recent trading. I’d bet that most shoppers won’t have heard of him or will have quickly forgotten about the allegations made against him.

I’m also willing to accept bad weather for poor performance in the US, especially as this explanation was used by highly-regarded laser-guided equipment manufacturer Somero Enterprises when it warned on profits last week. 

For me, Ted has simply become another victim of ongoing consumer uncertainty and the move away from the high street — something online-only Boohoo doesn’t need to worry about.

While I continue to believe that the shares will recover, the scale of the fall in earnings has forced me to revise my opinion on how long this will take. Like fellow retailer Superdry, where I have a small position, we’re looking at more than just a few months.

In contrast to Superdry, however, Ted carries a fair bit of debt. The former also benefits from having a highly-motivated returning CEO (and huge shareholder) in the form of Julian Dunkerton, making me slightly more optimistic that it will bounce back first.

As such, Ted remains on my watchlist for now.

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Paul Summers owns shares in Superdry and Somero Enterprises, Inc. The Motley Fool UK has recommended boohoo group, Somero Enterprises, Inc., Superdry, and Ted Baker. 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.

Rapid growth

Boohoo’s recent growth history is extraordinary. In the five years to 2018, revenues have increased nearly eight-folds to £580m, while pre-tax profits have soared nearly 14 times to £43.3m last year. Over that time, the ultrafast-fashion retailer has made new in-roads into the US and other international markets, and acquired labels PrettyLittleThing and Nasty Gal.

Highly-prized growth stocks invariably have an impressive story that helps justify the case. For Boohoo, it’s by making fast fashion even faster. Known as “test and repeat”, Boohoo’s strategy relies on ordering small quantities of a wide range of designs and products before reordering those that prove popular for bigger production runs.

This all-action business model enables Boohoo to bring new styles to market in as little as two weeks, allowing it to respond much more quickly to changing fashion tastes than its rivals. Even fast fashion retail giants such as Zara and Uniqlo cannot match their speed to market, giving firms such as Boohoo a big competitive edge when it comes to innovation.

Pricey valuation

It’s easy to see why so many investors admire Boohoo — it’s certainly well-managed, and robust growth looks assured for at least a few more years to come. By contrast, however, value investors may find it difficult to justify such a pricey multiple for the stock.

With operating margins of just 8.7%, it’s not as profitable as many would expect. Margins have also declined sharply in recent years as the company sacrificed profits for future growth. Its growth spurt has come at the cost of huge investments both in prices and infrastructure. But it’s not yet clear whether it will eventually be able to raise prices without losing sales.

Shares in Boohoo trade at 52 times its forecast earnings this year, on projected bottom line growth of 16%. That sort of high multiple on earnings is hard to find elsewhere, although so is its forecast growth.

A better buy?

Instead, Primark-owner Associated British Foods (LSE: ABF) may be a cheaper play in the fashion retail scene.

At first glance, the company doesn’t necessarily scream value, with shares in the conglomerate trading 21 times its expected earnings this year. But when we take into account its future growth prospects and recent weakness at its sugar business, I reckon there’s a strong case for further gains in its share price.

Unlike most high street fashion retailers, Primark is still generating healthy revenue growth, and contributing to an ever greater share of the group’s profits. Although growth has recently slowed amid weak consumer confidence in the UK, there’s growing optimism that the retailer’s like-for-like sales growth could soon be at an inflection point.

There are a number of bullish catalysts for Primark in the near-term, which include a possible rollout of more stores in the US, the closure of dozens of New Look and House of Fraser stores and other new store openings. And then for ABF as a whole, there’s the possible recovery in sugar business and the impact of operational improvements to the rest of the agri-foods business.

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Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and boohoo.com. 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.

Today’s news is a good example. The company released a strong trading update showing that first-quarter revenue was 52% higher than during the same period last year. Gross margins were up 1% at 55.2%, and full-year profit guidance was confirmed. Net cash rose to £151m, up from £133m at the end of February.

Despite this impressive performance, the shares promptly fell by about 4% when markets opened.

Why do the shares keep falling?

It’s certainly true that Boohoo’s valuation has become quite demanding, on 45 times next year’s forecast earnings.

It’s also true that historic rates of growth probably can’t be maintained. Revenue doubled last year — it’s only expected to increase by 35%-40% this year. However, today’s figures are in line with previous management guidance and confirm that the firm’s multi-brand strategy is working.

Here are three reasons why I believe Boohoo shares could continue to rise.

1. Successful strategy

The company’s multi-brand approach has allowed it to maintain a much stronger rate of growth than would be possible with just one brand. Boohoo-branded sales ‘only’ rose by 12% to £97m during the first quarter. But sales at PrettyLittleThing  rose by 158% to £79.2m, while Nasty Gal sales gained 149% to £7.2m.

This multi-brand approach is complemented by overseas growth. UK revenue rose by 49% to £110.7m during Q1. Sales in the rest of Europe rose by 82% to £22.3m, while USA sales climbed 75% to £31.4m. Although the overseas markets are much larger, sales remain lower than the UK. I think there’s a lot more growth to come from sales abroad.

Finally, despite its rapid expansion, Boohoo.com’s financial performance has remained rock solid. Profit margins are stable and net cash keeps rising, even after spending on growth. I believe this is a very well-run business.

2. Owner-managers are aiming big

Joint chief executives Mahmud Kamani and Carol Kane remain heavily invested in the business, with a combined shareholding of 20% (about £500m). They’re building an infrastructure that’s capable of handling £3bn of global sales each year. That’s three times analysts’ £1bn sales forecast for 2019/20.

The evidence so far suggests to me that profit margins should remain stable as the group grows, so profits could easily triple again. That would leave the stock on a P/E of just 14 at today’s share price.

3. Just look at the competition

Boohoo’s target market of younger shoppers likes to buy online and they like to buy often. They don’t want to visit traditional department stores and high street retailers.

Online rival ASOS is expected to deliver annual sales of £3bn next year. This firm is already larger and more mature than Boohoo, but there’s no sign that its growth is slowing. Earnings per share are expected to rise by 25% this year and by 23% in 2018/19.

The performance of ASOS suggests to me that Boohoo’s £3bn sales target is very realistic.

Why I’d buy

Boohoo shares are expensive. But in my opinion this business is one of the top growth stocks on the UK market. It might be worth paying extra to own a slice of this very successful business.

The post 3 reasons why the Boohoo share price could keep rising appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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.

Between the beginning of 2016 and the middle of 2017, the stock produced a return for investors of nearly 640%, smashing almost every other companies’ performance record over the same period.

However, since peaking in June 2017, the share price has languished. In fact, the shares have fallen 19% since then, underperforming the FTSE 250 by a staggering 27%.

Nevertheless, despite this recent performance, I believe that the share price could be gearing itself for a sudden move higher, and it could even be the bargain of 2018.

Story stock

Boohoo became a story stock in 2016. As investors rushed to get in on the company’s growth, its valuation exploded. Still, even though the underlying business has multiplied in size, it has not kept up with investor expectations.

It now looks as if the shares are taking a breather, allowing the fundamentals catch up.

For example, the share was changing hands for nearly 140 times forward earnings in 2016, an eye-watering valuation usually reserved for the fastest growing tech stocks and blue sky opportunities. And even though earnings per share jumped 96% during 2017, it was not enough to justify the premium valuation.

Now, after two years of rapid growth, the shares are starting to look more attractive again. While the stock might not qualify as a value investment, trading at 55 times forward earnings, when compared to projected earnings growth of 41% for 2019 and 26% for 2020, this valuation is no longer as outrageous as it once was. Boohoo also has a history of surpassing market expectations.

But it’s not just the lofty valuation that has been responsible for the company’s underperformance in recent months. The City is also worried that increasing competition from the likes of Asos (LSE: ASC) is weighing on profit margins, requiring higher levels of capital expenditure to stay ahead of the game.

Fighting for customers 

For its part, Asos has also seen investors turn away from the company in recent months. After topping out at a little over 7,600p in March, the stock fell to a low of 5,930p before rebounding. 

Even after this modest recovery, however, it is still trading 14% below the all-time high.

Compared to the Boohoo share price, it looks expensive. Analysts are expecting the company to report earnings per share growth of 25% for 2018, followed by an increase of 23% for 2019. However, even though it is expected to grow at a slower rate than its smaller peer over the next two years, the market has awarded its shares a much higher valuation. Specifically, shares in Asos are currently trading at forward P/E of 69, falling to 56 next year.

As Asos is Boohoo’s only real comparable here in the UK, I believe it is sensible to compare these two companies on a valuation basis, and it’s not clear to me the bigger firm deserves the higher multiple, especially considering it’s lower growth rate. 

The one advantage it does exhibit is its more extensive and more established international presence, although Boohoo is investing heavily in its international businesses to try and close the gap.

This brings me back to Boohoo’s spending plans. Asos has proven that it can expand profitably while still growing profits. But as Boohoo’s growth continues, the company has some work to do on this front.

Still, while the City frets about its profit margins, the company’s management does not appear to be concerned. Indeed, management recently guided that the group’s profit margin (earnings before interest, tax, depreciation and amortisation) would be 9% to 10% for 2018-19 and remain at this level for the foreseeable future. Moreover, as my Foolish colleague Alan Oscroft recently pointed out, with £133m of net cash on the balance sheet, the enterprise has plenty of capital to fund its expansion plans.

The bottom line 

So overall, considering the above, I believe the Boohoo share price could be set for a substantial move higher in 2019.

As the company continues to turn out earnings growth and matches profit expectations, the market will likely reward the firm by placing a higher valuation on its stock — one that’s closer to that of Asos. And with this being the case, I believe this growth champion could be the bargain of 2018.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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.

I’d seen the same before at ASOS, whose shares reached a high a couple of years previously, but then crumbled. Was it teething problems with worldwide supply logistics, or over-exuberance from get-rich-quick bandwagon investors? 

Almost certainly some of both, and we’ve seen a remarkable recovery. ASOS shares have recently beaten their 2014 high, and though they’ve dropped back a bit since, they’re still up 70% over five years.

Does the future hold the same for Boohoo? I think it could — but I still reckon it’s a very risky investment. Boohoo shares fell back quite some way from their peak last year, dropping a few points short of 50% at their lowest. But a resurgence in the past couple of months has seen them regain upward momentum. And while Boohoo shares are down 25% from their peak, they’ve still almost quadrupled over the past two years.

Are we looking at a steady upwards share price now or are investors in for a double whammy and a second downturn? For me it’s looking like a 50:50 gamble.

Cracking results

On the upside, sales are booming as the online sales model for fashion really is taking hold. Why spend ages in a bricks-and-mortar store trying on lots of different pieces in crowded conditions when you can order a whole load of stuff, try it on in the comfort of your own home, and send back what you don’t want?

We only have to look at the problems afflicting Marks & Spencer to appreciate the heavy overheads of running a full high-street retail chain. Although the erstwhile shoppers’ favourite revealed full-year results in line with expectations (when many thought they’d fall short), the company plans to close 100 stores by 2022. It also hopes to move a third of its sales online, having fewer and bigger clothing stores in prime locations. Does that sound anything like Boohoo’s model to you? It sounds to me like it’s getting that way.

Last month we heard that Boohoo’s revenue for the year to February 2018 had almost doubled, up 97% to £578m.  Adjusted pre-tax profit rose by 60% to £51m with bottom-line adjusted earnings per share up 47% to 3.23p.

And if anyone feared the company, still very much in its expansion phase, could be getting over-stretched on the cash front, worry not. Net cash at the end of the period increased by £74.6m to £133m.

But at what price?

Now the downside — the share price valuation. With analysts predicting a modest 15% rise in EPS in the coming year, forecasts put Boohoo.com shares on a P/E multiple of 54. Even a more impressive EPS rise of 26% pencilled in for February 2020 would bring that ratio down only as low as 42.5.

Ultimately I’d expect it to revert to closer to the long-term FTSE 100 average, and with that around 14, we’d need Boohoo’s EPS to quadruple from this last set of figures.

That’s certainly not out of the question over the next 10 years, and the shares could indeed double. But if there are any setbacks, we might see them halve instead. I’m slowly becoming less bearish on Boohoo.com, but it’s still too heady and too risky for me.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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.

Many of Britain’s listed retailers have been peppering the market with concerning trading details for well over a year now. That includes Marks & Spencer, which was again putting out scary numbers in Wednesday business.

It advised that demand for its clothing and homewares lines continues to decline, with related like-for-like sales falling 3.4% in January-March, versus 2.8% in the prior quarter. M&S cited a “more challenging market” as one of the reasons behind a sales slump during the second half of the year. Consequently, it’s putting its foot on the gas to embrace the fast-growing e-commerce segment through further waves of restructuring.

Investment paying off

Unlike M&S, Boohoo.com (LSE: BOO) has had no such problems, thanks to its already-robust position in the critical online marketplace. And this was underlined in recent trading numbers.

The AIM-quoted business advised in April that group revenues almost doubled during the 12 months to March to £579.8m, a result that propelled adjusted pre-tax profit 60% higher to £51m. The number of active customers at its core boohoo.com website increased 22% to 6.4m, underlining the massive impact the investment in its online platform has had.

But arguably its PrettyLittleThing division — a unit it acquired back in 2016 — stole the headlines. Customer numbers here leapt 128% in fiscal 2018 to 3m active users.

C0-chief executives Mahmud Kamani and Carol Kane lauded the results, commenting: “Against a backdrop of difficult trading in the UK clothing sector, the group continued to perform well, gaining market share in the expanding online sector.” And Boohoo.com has plenty of financial strength to continue investment in its brands as well as behind the scenes to keep sales rampaging higher. Net cash ballooned to £133m as of March from £54.8m a year earlier.

Kamani and Kane continued that “we believe that the benefits of our investments in marketing and warehouse automation will generate economies of scale to allow us to drive sales growth of at least 25%.” The business is expecting revenue growth of 35%-40% during the 12 months to March 2019.

Global superstar

Reassuringly for nervous investors, Boohoo.com’s tentacles are not restricted to just the UK, with its vast international presence providing some protection from the impact of declining consumer spending power in its core marketplace.

And the business is picking up momentum in these overseas territories. International sales leapt 364% last year and, given its relatively low market penetration abroad, it has plenty of business left to win. It’s planning a series of measures including the introduction of more country-specific websites to drive sales from foreign customers too.

City analysts are expecting the online giant to continue building earnings at a rapid rate and advances of 14% and 26% are forecast for fiscal 2019 and 2020, respectively.

Now Boohoo.com may be expensive, with the firm carrying a forward P/E ratio of 54.8 times. But this is a small price to pay given the rapid progress it’s making all over the world. I expect the business to prove an excellent stock to buy in the years to come.

The post Boohoo.com: a hot growth stock I’d buy today and hold forever appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. 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.