The Boohoo (LSE: BOO) share price has been one of the few winners in the recent stock market crash. With most high street stores closed, consumers have flocked to the group’s online offering, and sales have surged.
Booming demand has had a massive impact on the company’s shares. Indeed, the stock is up around 11% this year, outperforming the FTSE 250 by nearly 30%.
However, the Boohoo share price has come under attack this week. It slumped more than 10% on Tuesday after a well-known short-seller published a report attacking the firm and accusing it of misleading investors.
Boohoo share price: under pressure
As one of the London market’s most successful growth investments, the Boohoo share price has always attracted plenty of attention, not all of it good. The most recent attack on the company has come from short-seller Shadow Fall.
Short sellers try to make a profit by betting against corporations’ share prices. Shadow Fall has attacked several high profile targets in the past, including Burford Capital and IQE. Shares in these two companies have dropped 60% and 25% respectively over the past 12 months.
In its latest attack on the Boohoo share price, Shadow Fall has accused the company of overstating its free cash flow by £32.2m, or 65%. The firm has accused the retailer of failing to take into account tax payments. It also claims the retailer is mistreating the profits from its PrettyLittleThing subsidiary.
Boohoo owns a stake of 66% in this enterprise. Buying out the remaining stake could cost as much as £1bn, according to Shadow Fall.
In addition to the above, Shadow Fall claims online retailer ISawItFirst could threaten Boohoo’s market position. The Boohoo share price slumped after these accusations were published. The company has since said that it “strongly refutes” these allegations.
Time to buy?
Should investors use the sudden Boohoo share price fall to snap up a share of this retailer at a discount?
While Shadow Fall’s allegations are damaging, they don’t suggest the company is going to collapse anytime soon. What’s more, with demand for its services snowballing, even if the allegations proved to be true, it could only be a matter of time before the business recovers.
The coronavirus panic has only accelerated the growth of the online retailing market, and Boohoo is one of its most significant players. This gives the company a substantial competitive advantage. It can produce, distribute and market products more effectively than smaller players, and the firm’s size should ensure that it stays that way.
Even if the coronavirus crisis leads to a protracted economic downturn, this competitive advantage should help Boohoo prosper in the long run.
As such, now may be a good time to snap up the Boohoo share price as part of a well-diversified portfolio. Indeed, holding the company as part of a diversified portfolio could allow you to profit from any upside potential while minimising downside risk at the same time.
