It’s been an uncertain period for online clothing retailer Boohoo (LSE: BOO). A number of its sector peers have reported difficult operating conditions, with UK consumers being increasingly price conscious as their confidence levels remain weak. As a result, the company’s share price has fallen by 22% since the start of October.
Now though, the stock appears to have a wider margin of safety. As such, it could offer stronger capital growth potential than the FTSE 100. Alongside another growth stock that reported an encouraging update on Friday, it could be worth buying, in my opinion.
Improving prospects
The company in question is software and expertise specialist for Enterprise Innovation Performance Sopheon (LSE: SPE). The company has seen continued commercial delivery in the final months of the 2018 financial year. As a result, it expects that revenue for the year will be in line with previously upgraded market expectations. It also believes that there could be a stronger outperformance at the EBITDA and pre-tax profit levels.
The company is forecast to post a rise in earnings of 27% in the 2019 financial year. This would be a strong performance and, if achieved, would be the fourth consecutive year of earnings growth.
With Sopheon’s share price having risen by 154% in the last year, it is perhaps surprising that it still appears to offer a wide margin of safety for new investors. It has a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it may offer growth potential. With it seeming to have a sound growth plan, it may be able to deliver continued share price increases over the medium term.
Turnaround potential
While the Boohoo share price has declined in recent months, the outlook for the company appears to be relatively impressive. It is forecast to post a rise in earnings of 18% in the current year, followed by further growth of 24% next year. These growth rates could stimulate investor interest in the company, with it seeming to have a solid strategy that has been successful over a sustained period.
After falling heavily in recent months, the stock now has a PEG ratio of around 1.5. This indicates that while there may be cheaper options available in the retail sector, few retail companies with major exposure to the UK may be able to compete in terms of their growth potential.
With Boohoo having an online focus, it may be well-placed to benefit from a continued shift of consumers towards online options. Recent research suggests that there may be twice as many physical shops in the UK than are required. This means that a number of the company’s retail segment peers may be forced to close stores and incur further costs from the disruptive forces of the internet. This could provide it with a competitive advantage and could lead to further growth over the long term.
