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Should we now pile into Boohoo.Com plc after crashing 30%?

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It’s been less than three months since I commended Boohoo.Com (LSE: BOO) on its spectacular success. Rapid organic growth, complemented by the shrewd acquisitions of rival brands PrettyLittleThing and Nasty Gal have helped transform Manchester’s best kept secret into a global fashion leader. But readers will also remember me warning against buying the shares.

The time is now

Back in September I acknowledged that the online fashion brand remained a mouth-watering prospect for long-term investors, but unlike its very affordable clothing range, at 259p, the shares came with an eye-watering price tag, trading on a sky-high earnings multiple of 84. I was still ultra-keen on the company but advised readers to be patient and buy on any weakness in the share price. I believe that time is now.

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The Manchester-based retailer has certainly captured the imagination of investors, driving the shares up  to more than five times the original IPO price by the summer. But the inevitable market correction I warned of back in June has transpired, with the business losing 30% of its value in just six months.

Margins down

So what’s changed? Is there something fundamentally wrong with the business? Not really. The shares began their descent on the morning of 27 September – interim results day. The FTSE 250 group announced a 106% increase in revenues to £262.9m for the six months ended 31 August, with strong growth in all three brands across all geographical territories. Gross profit doubled from £70.5m during the first half of FY2016/17 to £140.2m, with pre-tax profits rising 41% to £20.3m. Do you see any problems with these figures? No, nor do I.

The only blot on the impeccable landscape was that the gross margin was down by 200 basis points to 53.3% (from 55.3%), reflecting further investment in its customer proposition. This slight blip in an otherwise better-than-expected first-half performance is all that was needed to leave the shares 15% worse off on the day, and continuing to slide in the two months since.

Rags to riches

This has always been the problem with highly-rated shares. Expectations are unreasonably high, and there is little margin (pardon the pun) for error. But I see this as a great opportunity for those that missed the original run up in the shares to get a second bite at the cherry. The fundamentals are still compelling, with management forecasting revenue growth of 80% for the year, up from previous guidance of around 60%, aided by strong international growth and increased share of overseas markets.

Boohoo has continued to make significant investment in IT infrastructure and warehouse capacity to ensure stable and sustained execution of the group’s growth strategy, and plans are progressing well for the next phase of longer-term requirements for warehouse capacity. The strong performance during the first six months of the year, and raised guidance for the second half, allied with the current weakness in the share price leads me to believe that this could be a great time to buy into Boohoo’s rags-to-riches story.

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Bilaal Mohamed 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.

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