Revenue rockets at top growth stock Boohoo. Time to buy?

Fast fashion giant Boohoo Group plc (LON:BOO) continues to impress. Paul Summers takes a look at the company’s latest update on trading.

| 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.

Shares in fast fashion giant Boohoo Group (LSE: BOO) were down over 5% this morning despite the company providing the market with the sort of trading update most firms, particularly those in the troubled retail sector, would kill for.

Sales soar (again)

Total revenue across all three of the company’s brands rose 39% to 254.3m in Q1.

Interestingly, PrettyLittleThing contributed 44% of this amount (£112.1m) — only slightly less than that achieved by Boohoo’s eponymous brand (£123.5m). Sales at the former jumped 42% compared to the latter’s 27%, demonstrating just how well the company is managing to grow previous acquisitions.

At 153%, the company’s third brand — Nasty Gal — achieved the biggest growth in revenue but still contributed only a small amount (£18.2m). 

Importantly, sales rose in all parts of the world in which Boohoo operates. The UK remains its biggest market, but sales in the Rest of Europe were up 72% to £38.2m and 64% to £51.3m in the USA. 

Taking this into account, I suspect Boohoo may end up beating its guidance on full-year revenue growth of somewhere between 25% and 30%. 

Over the reporting period, the AIM-listed company also purchased the brand and intellectual property assets of online womenswear retailer MissPap for an undisclosed amount. 

Despite this outlay, Boohoo’s finances continue to look rock solid with a net cash position of £194m by the end of May — 29% more than at the same point last year. 

Perhaps the only bit of ‘bad’ news was the slight reduction in gross margin from 55.2% to 55%, which may explain the share price reaction.

As always, however, Boohoo remains an expensive stock to buy, trading on an eye-popping 46 times earnings before today’s figures were announced.

As such, I feel it’s worth reminding Foolish readers that anything less than perfect delivery from new CEO John Lyttle and his team going forward could see the shares hammered.  

Profit warning woes

Whether the high expectations of Boohoo’s investors make it a risky buy or not, no one could argue that today’s numbers weren’t a world away from those released by Ted Baker (LSE: TED) yesterday, as covered by my Foolish colleague Roland Head

Like Roland, I do not believe that the departure of founder Ray Kelvin can be blamed for recent trading. I’d bet that most shoppers won’t have heard of him or will have quickly forgotten about the allegations made against him.

I’m also willing to accept bad weather for poor performance in the US, especially as this explanation was used by highly-regarded laser-guided equipment manufacturer Somero Enterprises when it warned on profits last week. 

For me, Ted has simply become another victim of ongoing consumer uncertainty and the move away from the high street — something online-only Boohoo doesn’t need to worry about.

While I continue to believe that the shares will recover, the scale of the fall in earnings has forced me to revise my opinion on how long this will take. Like fellow retailer Superdry, where I have a small position, we’re looking at more than just a few months.

In contrast to Superdry, however, Ted carries a fair bit of debt. The former also benefits from having a highly-motivated returning CEO (and huge shareholder) in the form of Julian Dunkerton, making me slightly more optimistic that it will bounce back first.

As such, Ted remains on my watchlist for now.

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 owns shares in Superdry and Somero Enterprises, Inc. The Motley Fool UK has recommended boohoo group, Somero Enterprises, Inc., Superdry, and Ted Baker. 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 »