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.

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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.

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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.

Undervalued opportunity

The current Boohoo share price is 93p. At this price, the stock trades on a price-to-earnings (P/E) ratio of just under 20. This might not seem cheap, but I still think the shares may hold some great value, especially when considering the future growth of the company.

As my fellow Fool Rupert Hargreaves points out, Boohoo has seen earnings grow at an average of 46% per year for the past seven years. If we assume the firm can continue to grow at a more conservative 10% for the next 10 years, it would hypothetically report earnings per share of about 15p in 2032. Assuming this, if the stock were to achieve industry average multiples — around 13 for the online fashion retail space — it could be worth 195p. This theoretical growth seems very enticing to me.

Looking at Boohoo’s close competitor H&M, I also see value. H&M trades on of a price-to-sales (P/S) ratio of 1.23, which is over double the Boohoo P/S ratio of 0.6. This further backs up my thesis that Boohoo’s shares may be undervalued.

Headwinds for the Boohoo share price

Although the share price does look cheap, there are a few concerns I have moving forward. The most pressing concern is some of the workers’ rights issues that have surrounded the firm in recent years. For example, in 2020, a Guardian report highlighted workers creating Boohoo garments being paid well below minimum wage. While the firm has recently taken steps to prevent such activity, these scandals have undoubtedly left a stain on the Boohoo brand name.

Another risk that I see affecting the share price in the short-to-medium term is the threat of rising interest rates. Both the US and the UK raised their rates last week to 0.25% and 0.75% respectively. When rates rise, investors tend to dump higher-risk growth stocks such as Boohoo. As the trend towards rising rates continues, the Boohoo share price could slide further.  

What I would do now

In my opinion, the current price does look cheap to me, especially considering it’s down over 70% from a year ago. However, if there’s one thing I’ve learned throughout my retail trading career, it’s that facts always trump hypotheses. While the shares might look cheap on paper, the risk of rising inflation and the branding scandals are both concrete factors. Therefore, I won’t be buying any Boohoo shares for 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.

ESG concerns

The firm’s business model rests upon the speedy design, production, and advertising of its products – fast fashion. This allows high volumes of garments to be created for low costs to the consumer. While this may sound promising on paper, Boohoo has been embroiled in numerous worker scandals as a consequence.

For example, in September 2020, a report by the Guardian indicated that workers at third-party suppliers were earning well below minimum wage in addition to enduring poor working conditions. The firm was also subject to a class-action lawsuit after being accused of misleading advertising in the US. In my opinion, these are some of the key reasons why investors have turned sour on Boohoo shares.

Another headwind Boohoo is going to have to contend with in the coming months is the threat of rising inflation. As prices rise across the world, it could pose a serious risk to Boohoo’s low-cost, high-volume operations. And supply chain issues have already impacted the firm, leading to 10-day delivery times to the US, which is a vital sales region for Boohoo.

In addition to this, the 2021 Q3 results, released in December 2021, have highlighted that the firm’s pre-tax margin outlook has been lowered from 9% to 6%. Factoring in tax, these margins will shrink further. Falling margins lead to reduced profitability which is the last thing Boohoo needs.

Reasons to be cheerful about Boohoo shares

Yet one reason that Boohoo shares do appeal to me, is the fact that the firm owns a pretty impressive arsenal of brands. It acquired a number of these retailers out of administration in 2021, the largest of which was Debenhams. In addition to this, its US distribution centre is expected to open in 2023, significantly expanding operations in the region. The US contributed to a quarter of revenues in 2021, so this seems like a great move to me.

Couple this expected future growth with the current price-to-earnings ratio of just 9.3, and Boohoo shares do look attractive to me. Perhaps the current share price could offer me a discounted entry position for future growth.

What I’m doing now

Yes, Boohoo shares are cheap, and the firm has some exciting plans ahead. However, I think that short-term rising costs could place a huge strain on the firm this year, especially considering its low margins. In addition to this, the ESG concerns are a big moral red flag for me. Therefore, I won’t be adding Boohoo shares to my portfolio any time soon.

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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.

Boohoo results

After the initial release of the results on 16 December, Boohoo shares plummeted over 25%. This was due to a reduction in the firm’s EBITDA and net sales outlook. However, the next day, the shares shot back up. I think this is because investors realised the results weren’t as bad as they seemed.

For the three months to 30 November 2021, gross sales rose by over a quarter. These sales also rose 58% and 102% compared to FY21 and FY20, respectively. These positive numbers have primarily been due to robust demand for products in the UK market. In addition to this, the business was able to largely increase its market share during the pandemic. Being an online-only retailer, customers flocked to buy Boohoo products as physical stores stayed closed.

I think this could play to Boohoo’s strength in the next few months too. With the recent news of the Omicron variant, the UK government is considering tightening restrictions. If this goes as far as another lockdown, it could help boost Boohoo’s sales yet again. I would also expect this to help the Boohoo share price keep climbing higher.

However, in the Q3 results, CEO John Lyttle highlighted the “disruption due to the pandemic” that was hindering growth in international markets. Although growth in the UK seems encouraging, Boohoo may struggle if it cannot boost its international demand. If growth does stall, I would expect the Boohoo share price to tumble further.

Share price concerns

The company still faces other challenges too. Boohoo has been in the spotlight continuously over the past year with multiple news stories denting its corporate reputation.

For example, a factory in Leicester that Boohoo was supplied by was reportedly paying workers as little as £3.50 an hour. In addition to this, the firm has been embroiled in a lengthy US lawsuit regarding fake advertising.

Both of these factors are also behind the disappointing Boohoo share price performance over the past year. Although the firm is making moves towards becoming more transparent and open, it can take substantial amounts of time to mend a damaged reputation. This could deter potential investors for years to come.

Another concern I have for the Boohoo share price is its value. Even after falling so heavily throughout the last few months, the price-to-earnings ratio is still very high at around 26. This seems expensive to me, even when considering the good results.

The verdict

For me, the Boohoo share price doesn’t look all that appealing. I think the results issued by the firm were solid, but many investors are worried about the ongoing effects the pandemic will have on the firm. In addition to this, trading at 23 times earnings, the share price isn’t exactly cheap. Therefore, I won’t be adding Boohoo shares to my portfolio any time soon.

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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.

Trading update

The Boohoo share price has been sliding for a while but more so since its half-year trading update, and it’s clear to see why. In fact, although revenues were able to increase 20% from this time last year, adjusted profit before tax was 20% lower. This was partly due to physical stores reopening and drawing customers away from online retailers, and partly to the added costs caused by raising wages for its workers. Although this was certainly necessary, it does also demonstrate the effect of its poor working condition scandal last year.

There are also likely to be issues for the full-year outlook. Indeed, the impact of inflation is likely to be felt by the company, and capital expenditure is now expected to be around £275m for the year, against a previous estimate of £250m. Therefore, adjusted EBIDTA margins are expected to be 9%-9.5%, lower than the previous guidance of 9.5%-10%. This declining profitability is an issue for the company, and something that could strain the Boohoo share price in the future.

Why I’d buy

Despite these negatives, there are several reasons why I’d buy the growth stock. For example, over the past couple of years, Boohoo has managed to double its market share in both the UK and the US. It also plans to open a new distribution centre in North America in 2023, which should help its American expansion. As such, while profits may have slightly decreased recently, there’s no sign that revenues are also going to decrease. Therefore, I believe that the drop in profits is just a short-term problem.

The valuation of the stock is now far more appealing. Indeed, for the next financial year, it is estimated that the company will have an earnings-per-share of 11.5p. As such, the company has a forward price-to-earnings ratio of 17.4. For a company that is seeing large revenue growth, this is not too expensive at all. Despite this, the company may not reach these estimations, and this could cause a drop in the Boohoo share price.

Even so, this lower valuation does reflect the rising competition in this market, including webstores like Shein and Missguided. This could potentially hit profits over the next few years.

What’s next for the Boohoo share price?

Despite the issues with the company, I feel that the Boohoo share price is now too cheap, and this recent dip offers a good time to buy. Indeed, the company has an extremely large customer base, and despite the reopening of shops, demand remains strong. Therefore, I’m very tempted to buy shares.

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Stuart Blair 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.

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.