Is it time to pile into top growth stock Boohoo after today’s news?

Shares in Boohoo Group plc (LON:BOO) rose on impressive full-year results. But is all the good news priced in?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Having delivered for so many early investors between 2014 and mid-2017, the share price performance of fast-fashion online retailer Boohoo Group (LSE: BOO) hasn’t been quite so predictable over the last 18 months, or so.

Nevertheless, today’s full-year results won’t have done the company’s chances of eventually breaching previous price highs any harm at all.  

“Global opportunity”

Even the most sceptical market participant would have a hard time convincing anyone that business at the e-commerce firm was anything other than excellent. Group revenue jumped by 48% over the year to the end of February (to £856.9m) with growth seen in all regions where it operates.

With the number of active customers now topping 7m and a huge following overseas, sales at the signature Boohoo brand came in 16% higher than in the previous year at £434.6m.

Even more encouraging, revenue at PrettyLittleThing more than doubled to £374.4m, thanks in part to the company’s ability to attract high profile celebrities to endorse the brand.

Although starting from a lower base, sales from Nasty Gal also soared 96% to just under £48m. With figures like these, it’s only natural for management to be confident. 

In his first set of results as CEO, former Primark man John Lyttle said that ongoing investment (such as the relocation of PrettyLittleThing’s distribution centre to Sheffield and the extension to its facility in Burnley) had allowed the company “to develop a scalable multi-brand platform that is well-positioned to disrupt, gain market share and capitalise on what is a truly global opportunity.” 

So, it’s time to pile in?

Boohoo’s shares were up a little over 3% in early trading, suggesting the market is more than satisfied by today’s numbers, which also included a meaty 38% rise in pre-tax profit to a little under £60m.

Nevertheless, I continue to be torn as to whether the shares are a buy right now. Arguments in favour include there being no sign of recent performances slowing with news that new fiscal year trading had got off to a strong start.

Indeed, trading so far in 2019/20 has been “encouraging“, according to the company. A revenue growth target of somewhere between 25% and 30% for the new financial year was also set.

The rise in popularity of PrettyLittleThing and Nasty Gal will surely continue as well. Indeed, the possibility that the former could overtake the main brand in terms of sales as it enters new markets is very real, in my opinion. 

Another positive is the fact that Boohoo continues to boast a bulletproof balance sheet with net cash up 43% on last year to £190.7m.

As good as all this sounds, however, it’s hard to get away from the fact that the stock still looks very pricey. Before today, predicted earnings per share growth of 25% in the next financial year gave a P/E of 44.

Frothy valuations such as this increase the possibility of investors being disappointed at some point in the future. As legendary investor Howard Marks once put it: “High prices collapse of their own weight.

Other things worth considering are the fickleness of Boohoo’s target market and what impact Brexit could eventually have on consumer spending. Ongoing capital expenditure will also mean no dividends for the foreseeable future. 

So, while Boohoo continues to impress, anyone considering buying any highly-rated stock must be confident in their ability to know when the fine line between optimism and excessive bullishness has been crossed.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers 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.

More on Investing Articles

Investing Articles

Would Warren Buffett buy BP shares, as oil excitement grows?

Warren Buffett is a big investor in the oil business, and BP's performance has been attracting investor attention in results…

Read more »

Cropped shot of an affectionate young couple posing with a bunch of flowers in their kitchen on their anniversary
Investing Articles

Here’s how long-term loyalty to UK shares can lead to dazzling returns!

The most successful UK and US share investors buy shares to hold for the long term, as this report shows.

Read more »

Investing Articles

NatWest has just smashed brokers’ dividend forecasts!

After NatWest delivered a Valentine’s Day surprise to investors, our writer thinks the experts may have to raise their dividend…

Read more »

Investing Articles

The NatWest share price slips in early trading despite positive FY 2024 results. What’s the deal?

The NatWest share price is down slightly this morning after the bank released its final results for 2024. Our writer…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

My Legal & General shares have climbed just 7% — so how come I’m sitting on a 20% gain?

Harvey Jones' trading account is showing only a modest return on his Legal & General Shares, but on drilling down…

Read more »

Investing Articles

Prediction: the BP share price could rise in 2025 (or it might fall!)

Following this week’s release of the energy giant’s 2024 results, our writer reviews the prospects for the BP (LSE:BP.) share…

Read more »

many happy international football fans watching tv
Investing Articles

What’s gone wrong with the FTSE 100’s ‘King of Trainers’?

Feeling the pain of a 28% drop in the JD Sports share price over the past three months, our writer…

Read more »

Investing Articles

Is it too late for investors to consider buying these outstanding FTSE 100 shares?

Stephen Wright wonders whether now's the time to consider buying shares in the FTSE 100’s outstanding companies, despite some high…

Read more »