Over the last 12 months of trading, boohoo shares are down 81%. They are currently trading at 57p, down 86% from the all-time high price of 413p set in June 2020. But is the latest investor interest in the firm a sign of a turnaround or is the company a value trap at current levels? Let’s find out. 

Overseas interests 

Any time a large investment firm acquires a stake in a falling stock, I tend to look at it as a long-term play. And Citadel’s interest does not come as a surprise to me. boohoo has been increasing its presence in the US, which is its second-fastest growing market after the UK.  

In fact, sales in the region grew 4% in 2022. However, the biggest roadblock that boohoo’s expansion in North America faces is its lack of distribution centres there. And with rising fuel prices, shipping costs have multiplied for e-commerce businesses. In the last year alone, boohoo saw a £26m increase in shipping costs. And this has led to inflated prices in the region.

The board already has plans underway to establish a physical distribution centre in the US. And I think Citadel sees this move as a fix that could open up a huge market for the company in the country. A distribution warehouse in the US would reduce shipping costs which in turn could reduce product prices.

While I think this is a promising move for the company, is it enough to trigger an explosion in the boohoo share price? I think not.

boohoo share price outlook

Looking at the performance of boohoo shares over the last year, I think investors see glaring holes in the business. While sales increased last year, the company’s revenue has dropped steadily over the last four quarters. While a lot of this can be attributed to inflationary pressures, the company’s valuation has been dropping too. 

At their highest point, boohoo shares were valued at £5.2bn. At the current share price, they are valued at just £721m. And the company also recorded its first fall in sales volume in the UK last month. 

The group’s adjusted earnings before interest, taxes, and amortisation (EBITA) fell 28% last year to £125.1m. And the revenue margins dropped to 6.3% in 2022 from 10% in 2021. Despite this, boohoo is on an acquisition spree. The firm spent £261.5m on brands like Debenhams and building infrastructure for growth. This brought down net cash to £1.3m from £270m in 2021.

This looks to me like shaky financial grounds for a business wanting to expand fast. And the group expects lower sales for 2022-23 as well, citing pandemic-related concerns as the driving factor. 

The group is already looking to cut down on inventory size and implement cost-effective sourcing to reduce losses from the high volume of product returns that most fashion brands are facing today. But with inflation running rampant, I think September’s interim results will be subdued as well.

Yes, the long-term growth prospects for the brand are still attractive. But because of the economic turbulence right now, I do not see boohoo shares exploding after the Citadel purchase, which is why I am steering clear of the online fashion brand at the moment.

The post Down 81%, are boohoo shares set for an explosive comeback? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Suraj Radhakrishnan 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.

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.

The post 3 UK stocks to avoid this summer appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

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.

The boohoo (LSE: BOO) share price has collapsed by more than 73% over 12 months, making it the second biggest faller in the FTSE AIM 100 index. Do the online fast-fashion retailer’s difficulties mean I should stay away? Or do growing sales make boohoo shares a value investor’s dream at penny stock levels?

Let’s explore whether I’d buy boohoo stock today.

Why boohoo’s share price could rise above £1 soon

Despite recent struggles, there are signs the boohoo share price could be bottoming out. Since touching a 52-week low of 63.32p on 7 March, the shares have staged a recovery over recent weeks and now trade above 90p.

Growth in net sales for the three months to the end of February hit 7%. Additionally, the Manchester-based group expects adjusted EBITDA of £125m for the latest financial year. I’m keenly awaiting the company’s preliminary results on 4 May, which could prompt upward movement in the boohoo share price, if targets are hit.

In further positive signs, company insiders snapped up 130,670 shares over the past 12 months. Non-executive director, Iain McDonald, bought over £300k of the company’s shares at 103.1p each, suggesting insiders see value in boohoo stock at current prices. Total insider ownership currently sits at 24%. This creates strong incentives for good performance.

The fashion e-commerce market has grown consistently over the past five years. Many analysts expect this trend to continue. With a recent expansion into five Asian countries and an enviable list of brands to its name, including Nasty Gal, PrettyLittleThing, and Debenhams, Boohoo could be well positioned for a brighter future.

Headwinds for the shares

boohoo shareholders have become accustomed to bad news since the company was rocked by allegations of poor labour practices in 2020. Factory workers in Leicester were earning as little as £3.50 per hour according to The Sunday Times.

boohoo’s troubles don’t end here. Supply chain bottlenecks and increased freight costs have hit the retailer’s profitability. Moreover, it has faced difficulties in recent months as customer returns have increased. The company expects this to continue for some time.

Longer term, the shares also face intensified scrutiny from ESG-conscious investors. According to IHS Markit, the fashion industry is responsible for 8%-10% of global greenhouse emissions. And 60% of fast-fashion garments are estimated to end up in landfill within a year of purchase.

Finally, boohoo faces stiff competition from other online retailers, such as ASOS. Following a move from AIM to the London Stock Exchange‘s Main Market earlier this year, ASOS is eyeing a promotion to the FTSE 250. boohoo shareholders will hope the company’s fortunes change soon as it battles to retain market share.

Should I buy now?

Investing in boohoo isn’t risk free. The company has a history of repeatedly disappointing investors. However, with the share price in pennies, the stock does look particularly cheap to me at present.

With insider backing, improving corporate governance and a new ‘Ready for the future‘ collection made from recycled materials, I think better days could be ahead. I’d add some boohoo shares to my portfolio as a higher-risk play while the share price still looks like an attractive value proposition.

The post Is time running out to buy boohoo shares below 100p? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Charlie Carman does not own shares in any of the companies mentioned. The Motley Fool UK has recommended ASOS 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.

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.

The post Does the boohoo share price make it a buy? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

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.

CMC Markets

My first pick for next year is online trading platform provider CMC Markets (LSE: CMCX). Shares in this company have sold off recently following a reduction in market volatility and, consequently, a fall in net operating income and profits. The dividend has been slashed as a result. 

Considering how much of an anomaly 2020 was, this slowdown was always likely. Compared to pre-Covid-19 numbers, however, CMC is clearly growing well. Its evolving stockbroking business is going great guns and the company is considering separating this from its spread betting business in the future. 

Obviously, further falls are possible and the ongoing threat of regulation in its industry will put some off. However, the shares look tempting at less than 11 times earnings. There’s a stack of cash on the balance sheet and founder and CEO Lord Cruddas still owns a huge stake.

Perhaps most importantly, a flurry of anxiety in the markets as we enter 2022 could cause a rebound in levels of client activity. 

Britvic

For a nice mix of growth and income, I’d snap up stock in Britvic (LSE: BVIC). The Hemel Hempstead-based business owns a portfolio of highly ‘sticky’ brands such as Tango, J20, and Robinsons. It also has an exclusive agreement to produce and distribute Pepsi, 7UP and Mountain Dew in the UK on behalf of US giant PepsiCo until the end of 2040.

Like most businesses, Brivic’s fortunes could be dealt a blow if pandemic-related restrictions were to get particularly tough. However, the eventual, inevitable return to normality should play into the company’s hands as people return en masse to restaurants, bars and cafes.

Its shares trade at a little less than 16 times earnings. That’s pretty cheap compared to others in the sector. It’s also attractive considering the company’s defensive qualities.

As mentioned, there’s a nice dividend stream too. The 3% yield looks easily covered by profits, meaning a cut to Britvic’s payout looks pretty unlikely. 

Somero Enterprises

Somero Enterprises (LSE: SOM) has been one of the top-performing stocks in my portfolio in 2021. I think there could be even more to come in 2022.

Somero produces laser-guided machines that make concrete surfaces perfectly flat. Boring? Arguably. Essential? Yes. Profitable? Increasingly so. The huge rise in demand for warehouse space from retailers has been a boon for this company and Covid-19 has only served to boost this need further. 

Earlier this month, the small-cap announced that it expected to exceed previous guidance yet again for 2021. Thanks to strong momentum in North America, revenue will now come in around $130m — $10m more than thought in September. Better still, project backlogs are seen “extending well into 2022“. 

Despite this good news, the market still looks to be cautious about Somero. As I type, the shares are trading at just 11 times forecast FY22 earnings. That still looks like a steal for a leader in a specialised market, particularly one that generates high margins and returns on the cash it reinvests into itself. Other draws include its robust finances and a big 6.9% dividend yield.

Rio Tinto

FTSE 100 mining giant Rio Tinto (LSE:RIO) hasn’t had the best of years. Nonetheless, I see two big attractions.

The first is the huge dividend on offer. Analysts currently have the company returning 457p per share for FY22. Based on the current share price, that’s a yield of 9.5% — more than adequate compensation for being made to wait for a recovery. The payout should also serve as a great way of outpacing inflation (which shows no signs of slowing just yet).  

The second attraction for me is the potential for a commodities supercycle over the next few years. Huge amounts of copper, lithium and aluminium will be required to meet the demand for electric vehicles and clean energy solutions. This should do the £80bn cap’s bottom line no harm at all.

Obviously, there’s nothing to say that Rio’s share price won’t fall further. As a ‘buy and hold’ dividend stock for 2022 and beyond, however, I think this is among the best available in the FTSE 100. The valuation, at just seven times forecast FY22 earnings is low too.

Boohoo

Suggesting that Boohoo (LSE: BOO) might be one of the best stocks to buy for 2022 sounds nothing short of fanciful right now. The fast-fashion giant’s value has plummeted this year as increased costs, corporate governance concerns, reduced sales guidance and higher levels of returns have all pushed investors to the exits.

It’s undoubtedly been a tricky year and problems may persist. However, the share price capitulation looks overdone to these eyes. Boohoo is far from being financially vulnerable. Thanks to some canny acquisitions over the pandemic, it also boasts a far larger portfolio of brands. The purchase of Debenhams, for example, opens up a lot of new markets, including make-up and homewares.  

Simplistic as it sounds, it can often be the case that this year’s losers turn into next year’s winners. I wonder if this might be the case with Boohoo. If the next update is even remotely better than forecast, we could see a squeeze on short sellers and the share price could fly. Surely the margin of safety has never been better?

Caution advised

In proposing the above, it’s necessary to clarify a couple of things.

First, I have no idea what will happen in 2022. Not a jot. In my defence, neither do the traders or fund managers that sit glued to their screens. If anyone says differently, feel free to chuck a glass of mulled wine over them. All any investor — professional or armchair — can do is make educated guesses and try to gauge risk correctly. If a few (or all) of my calls come off and beat the market return, I’ll be chuffed. I’ll also preemptively highlight the role of luck. 

Speaking of risk, it’s worth mentioning that my picks have been made with a degree of diversification in mind. While this will lead to lower returns than if I were to pick the best performing part of the market, this presumes that I already know which part of the market that is. And I don’t. Regardless of what may be going on in the world at the time, spreading my money around sufficiently should prevent me from making any impulsive and costly decisions.

Wishing all Fools a safe Christmas and New Year and a profitable 2022.

The post My 5 best stocks to buy for 2022 appeared first on The Twelfth Magpie.

More reading

• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…
• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?
• CMC Markets: a FTSE dividend star worth considering for an ISA or SIPP?
• £1,000 buys 268 shares in this dirt-cheap dividend stock that’s on fire in 2026

Paul Summers owns shares in Somero Enterprises and boohoo group. The Motley Fool UK has recommended Britvic, 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.

Despite a 13% rally on Friday, last week skimmed over 20% off the Boohoo (LSE: BOO) share price. The stock has struggled over the course of the year and investors have seen the share price of the online fashion retailer plummet 65%.

This raises the question: why have we seen such a downward trajectory in the Boohoo share price? And, more importantly, can it make a recovery from its poor form seen over the past year or so? Let’s take a look.

Boohoo earning report

The main reason for the latest fall was the release of the firm’s trading update. The central takeaway that hurt investor confidence was its guidance cut. The business blamed this on higher than expected returns rates, along with continuous delivery disruptions as Covid-19 continues to put a halt to normal proceedings. As such, management has adjusted full-year guidance. Safe to say, this did not sit well with shareholders.

What this translated to was a cut in total sales growth, with estimates now placed at 12%-14%. This was a large cut to the original 20%-25% guidance. Adjusted EBITDA margin guidance also saw a drop, of around 3%, to between 6% and 7%. For a potential investor like myself, this was not positive news.

However, and as my fellow Fool Zaven Boyrazian highlighted, there were some positive signs in the update. Most notably, the last nine months have seen double-digit sales growth, sitting at £1.48bn. That’s a 65% increase from the same period in 2019. The firm also said it continues to invest in its distribution network, with its first US distribution centre expected in 2023. That is important as fulfilling international orders from the UK dented global sales in the latest period. This investment demonstrates that, despite the short-term issues Boohoo may be facing, it certainly has long-term potential.

I’m still cautious

Yet I do have further concerns with Boohoo. One is competition, partly coming in the form of Chinese online fast-fashion retailer Shein. That business has experienced major growth recently, bringing in nearly $10bn of sales in 2020 – its eighth consecutive year of revenue growth above 100%. Forecast sales for the next year are just below the $15bn mark, showing the threat it poses to Boohoo. However, Boohoo is not alone in its struggles. And not all its competition is enjoying similar success to that of Shein. For example, ASOS has also suffered this year, with its share price down over 50% year to date.

Another concern for me is the reputational issues that continue to hang around. More specifically, accusations against suppliers paying workers below the minimum wage. This has massively dented Boohoo’s reputation — adversely impacting the share price.

My outlook

Boohoo’s return to its 410p high always looked to be an uphill battle, but it seems this latest update has rubbed salt in the wounds. While the update did offer glimmers of hope, the adjusted guidance reinforced the negative impacts Covid has had on businesses such as Boohoo. The 24% fall last week represents only a small part of what has been a poor year for the Boohoo share price. Although currently trading for 105p, I won’t be looking to buy Boohoo shares any time soon.

The post Why did the Boohoo share price fall over 20% last week? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS 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.

The Boohoo (LSE: BOO) share price has had an awful 2021. Following today’s trading update, it just got even worse. Now down 66% year-to-date, it’s hard to come across many people with a good thing to say about the former market darling. In fact, something’s come to my attention that suggests things might get even worse before they get better. 

Boohoo share price: attack of the shorters!

According to shortracker.co.uk, the number of short-sellers targeting Boohoo has increased significantly.

Short-selling (betting a share price will fall) is a risky business. While the gains from betting long on a stock are technically infinite, there’s always a limit to the extent these traders can profit. In other words, a share price can’t go below zero. This makes it important for any shorter to be extremely confident in their view that Boohoo will continue to struggle.  

At this point, it’s worth highlighting that the fast-fashion giant is far from being the most shorted stock on the UK market. That dubious accolade (justifiably) goes to heavily-indebted Cineworld. However, Boohoo is now 13th on the leaderboard, not far below battered FTSE 100 member International Consolidated Airlines.

Buy, sell, or hold?

As a shareholder, it goes without saying I haven’t enjoyed Boohoo’s recent form. The emergence of a significant minority of short-sellers is another headache. Having said this, I’m not intending to sell for a few reasons. 

First, Boohoo has survived such selling pressure before. Back in May 2020, hedge fund ShadowFall claimed the company was overstating its profits and cashflow. These allegations were quickly refuted and shareholders regained their composure.

Second, many online retailers are struggling right now. Industry rival, for example, ASOS continues to suffer. Lockdown beneficiary AO World has fared even worse. So it’s simply not the case that everyone else is getting richer while Boohoo’s owners suffer.

Third, if sentiment is already low, it takes just a bit of better-than-expected news to generate a ‘short squeeze’ where those betting against a company rush to close their positions. This can often put a rocket under a share price.

Lastly, I’ve made a point of being sufficiently diversified elsewhere not to make selling my holding at (possibly) the worst time even necessary. Successfully mitigating risk in tis way is key to staying in the investment game and applies to all my holdings.

No guarantees

Perhaps I’m just biased. There’s no rule to say the Boohoo share price won’t fall even further, especially after today’s statement.

While demand in the UK looks steady, overall net sales only rose 10%  in the three months to 30 November due to a much higher amount of clothes (particularly dresses) being returned. Performance abroad has also suffered from longer delivery times/higher costs. As a result, Boohoo is now guiding full-year net sales growth of between 12% and 14%. That’s a big reduction to the 20% to 25% previously expected.

Worrying as all this is, these numbers (and the presence of shorters) merely confirm what we already know: times are tough and this company is firmly out of favour. And, seen through a long-term lens, the best time to buy a company is often when things look bleak.

With its growing portfolio of brands, huge overseas growth potential, new distribution network and strong finances, I’m cautiously optimistic Boohoo will rise again.

Will I sell? No. Hold? Yes. Buy more? Possibly.

The post The Boohoo share price is under attack! Should I buy more, hold, or sell? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Paul Summers owns shares in boohoo group. 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.

Fast fashion multi-bagger

The penny stock in question is Sosander (LSE: SOS). Providing “a one-stop online shop for style-conscious women who have graduated from price-led alternatives”, the company also boasts brand partnerships with FTSE 100 firm Next, FTSE 250 member Marks & Spencer, and John Lewis. Just like the aforementioned Boohoo and ASOS, Sosander makes full use of data analysis to gauge which products it should prioritise and the best ways of reaching its target audience. 

Despite only being around since 2016, the company was listed on AIM only a year later. Performance since then has been somewhat erratic. For example, the share price went from 45p in September 2018 to just above 5p when the first UK lockdown was announced. However, anyone brave enough to buy this penny stock back when the chips were down will have done extremely well. Since March 2020, the valuation has climbed roughly 560%!

Based on today’s half-year numbers, I think there could be even more upside ahead.

Sales soar at this penny stock

At £12.2m, revenue rocketed no less than 184% in the six months to the end of September. To put this in perspective, that’s more than in the whole of the previous financial year. Gross profit came in at £6.9m — up more than 200% — and gross margin hit a superb 56.5%.

Other positives include the number of active customers over the six months soaring by 41% to over 191,000. This suggests that co-CEOs Ali Hall and Julie Lavington have got their marketing strategy spot on. 

Like many penny stocks, Sosander remains loss-making. However, an EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of just under £1m is lower than the £1.02m seen last year. In other words, things are going in the right direction. In fact, the Wilmslow-based business revealed that it was EBITDA positive in both October and November as shoppers snapped up partywear, outerwear, and knitwear. 

No sure thing

Perhaps unsurprisingly, Sosander stated that it was trading ahead of current analyst expectations for the full year. Unfortunately, the share price is barely up as I type. I think this is most likely due to traders being caught off guard by suggestions that existing vaccines may not be all that effective against the new Covid-19 variant. On another day, the reaction might have been a lot different.

Even so, it’s worth bearing in mind that Sosander is hardly a risk-free proposition. Although the company had seen “no material impact” from supply chain disruption so far, things could easily get worse before they get better. I’m also minded to remember that, pandemic or not, the £75m cap operates in a highly competitive industry where, I imagine, brand loyalty is increasingly hard to secure.

My verdict

No one can say for sure what will happen next with Covid-19. As promising penny stocks go, however, this is definitely one I’ll be adding to my watchlist. If general market sentiment dips again over December, I may just need to make room for Sosander in my portfolio.

The post This penny stock is putting Boohoo and ASOS to shame! Time to buy? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended ASOS 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.

The Boohoo (LSE: BOO) share price crashed in early trading this morning. This is despite news the fast-fashion giant had achieved record sales over the six months to the end of August.

Let’s take a deep dive into today’s statement and extract the key points that current holders (like me) and prospective buyers need to know if we’re to decide whether this is fall’s justified.

Reasons to be cheerful

Why not start with the positive news? For me, there was actually a lot to like in today’s statement. 

Claiming to be “leading the fashion eCommerce market” is no small boast. With Boohoo, however, it’s starting to look increasingly justified. The business achieved £976m in sales over the period — a rise of 20% over that achieved in the same period in 2020.

More importantly, this was 73% up on the £565m logged two years ago. Considering the damage wreaked by Covid-19 last year (and despite Boohoo managing to do very well considering), I’m taking this latter percentage as better evidence of just how well the company’s expanding.

What’s more, this growth isn’t restricted to its home market. In addition to sales increasing by 81% in the UK over this two-year timeline, Boohoo’s international sales jumped 63%. A 126% rise in the US is further evidence of just how well the company’s travelling.

When you consider how much criticism it’s has faced over the last year, due to concerns over the quality of its suppliers and its potential to impact shoppers’ behaviour, this is pretty stellar stuff. 

Boohoo’s share price crash

So why the crash? There are a few reasons. Despite the huge sales figure, adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) fell 5% to £89.8m. As the company pointed out, this was 40% higher than that achieved in 2019.

However, it was lower than what the market was expecting, due in part to “£26m of freight and logistics costs inflation.” And the market can be brutal if it doesn’t get what it wants. Adjusted pre-tax profit fell 20% to £63.8m.

Although no great surprise, some investors may also be put off by the company’s intention to continue throwing cash at existing and new brands. Capital expenditure for the full year is now likely to be in the region of £275m — 10% higher than the maximum Boohoo previously predicted. Due to infrastructure and marketing spending to date, Boohoo’s war chest of cash is already much depleted to £98.4m. 

Other possible reasons for the Boohoo share price tumble include a reversion to pre-pandemic return rates and competition from physical stores. Neither of these should really come as a surprise, but investors are clearly in an unforgiving mood. 

And then there was the change in guidance…

Lower sales growth

Today, Boohoo said it expects full-year sales growth of between 20% and 25%. Previously, it had targeted 25% growth. For a company that’s consistently raised expectations over the years, that was always likely to sting. 

To achieve this, BOO will need to post growth of 20-30% in the second six-month period. On a positive note, the company made a point noting that demand for its fashion brands had improved last month, especially in the UK. This momentum has apparently continued into September with gross sales growth higher than that seen in Q2. 

Naturally, there’s no sure thing when it comes to business and, consequently, investing. As things stand, Boohoo is expecting the impact of Covid-19 factors to “normalise over the medium term” but there’s no guarantee this will happen. Moreover, the initial rush to purchase new clothes as the UK emerged from multiple lockdowns could/will moderate. Competition from online-only rivals such as ASOS will remain fierce too. 

Those rising freight, logistical and labour costs certainly won’t disappear overnight either. Again, Boohoo believes these headwinds will eventually reduce thanks, in part, to its recent investment in its infrastructure. But again, it has little control over this in reality. Indeed, Boohoo already thinks margins could fall to 9-9.5% from the previous estimate of 9.5-10%. This seems likely to be another reason for investors heading for the exits this morning. 

Operational progress

As a holder, I need to be comfortable with the above. And I am. Short-term headwinds aside, Boohoo’s a very different beast than it was even last year. Having snapped up brands when everyone else was losing their heads, the company now has an addressable (and dressable) market of 500 million potential customers.

How much of this it’s able to capture remains to be seen. Even so, significant progress has already been made on an operational level. Over the six month period to August, Boohoo has relaunched four new brands it bagged on the cheap.

Of these, Debenhams is by far the most interesting acquisition for me since it opens up a whole new set of markets, including homewares and beauty. If it can work its magic here, today’s fall in the Boohoo share price will be but a blip in time.

On top of this, there’s a commitment to opening a new distribution centre in the US. This should further boost Boohoo’s presence in what’s already proving to be a very lucrative market for the £3bn-cap.

Away from the headline numbers, there’s also clear evidence (in my opinion) that Boohoo is actively addressing those ESG concerns via its ‘Agenda for Change’ initiative. Lists of UK and international suppliers have now been published, providing visibility to concerned investors. The company is also beginning to stock more sustainable clothing and will launch a ‘resale platform’ next year.

Staying put

As a holder of the stock, I’m obviously gutted by the market’s reaction to today’s news. It is, however, not completely surprising, given the tendency of traders to sell first and evaluate later.

Share price shenanigans aside, the fact that Boohoo is experiencing similar problems to other listed companies, but still managing to grow strongly, gives me a lot of confidence. If anything, I believe today’s crash in the Boohoo share price is a golden opportunity for a long-term holder such as myself to continue increasing my stake in the company.

The investment case hasn’t changed, after all. If I’m truly the Foolish long-term investor I believe myself to be, I simply need to sit tight and ride out the storm.

The Boohoo share price is now 40% below where it stood this time last year. Anyone buying back then has my sympathies. Notwithstanding this, the margin of safety is surely now better than it’s been for a very long time.

Having made the mistake of snatching at profits with Boohoo in the past, I’m in for the long ride. 

The post The Boohoo share price has crashed! What’s going on? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended ASOS 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.

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.

The post The Boohoo share price is falling. Should I buy now? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

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.