Boohoo shares are up 1,400% in 5 years. Is it too late to buy now?

Boohoo shares have risen from under 30p to over 400p in the last five years. There could be plenty more growth to come though, says Edward Sheldon.

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Boohoo (LSE: BOO) shares have been one of the London Stock Exchange’s biggest success stories in recent years. Over the last year, Boohoo’s share price has surged 90%. Over the last five years, it has risen more than 1,400%.

Is it too late to buy the AIM-listed online fashion retailer now? I don’t think so. Here, I’ll explain why I believe Boohoo shares can continue to march higher over the medium-to-long term.

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Boohoo: going from strength to strength

While many high street retailers are struggling right now, Boohoo is going from strength to strength.

Just look at the company’s sales growth. Over the last three years, sales have risen by more than 300%.

Meanwhile, in a trading update earlier this week, the group reported revenue growth of 45% for the three months to 31 May (including growth of 83% in the US). Given that the quarter was in the middle of a global pandemic, that’s extremely impressive.

Looking ahead, I expect sales and profits to continue growing at a rapid rate. This week, the company advised that for the current financial year ending 28 February 2021, it expects top-line growth of 25%, ahead of market expectations.

Looking at that forecast, the growth story here appears to be far from over. Further growth should continue to drive the share price higher.

A retailer designed for the 21st century

Why is Boohoo enjoying such amazing success right now? I can think of a number of reasons:

  • It owns a number of brands that are extremely popular among the Millennial generation – who spend a high proportion of their disposable income on clothing – including Boohoo, PrettyLittleThing (of which it now owns 100%), Nasty Gal, and MissPap.

  • Its brands design and manufacture on-trend clothing that is highly affordable.

  • Its brands have a huge social media presence. For example, PrettyLittleThing currently has 12.4m Instagram followers while Boohoo has 6.6m. The company also now has a presence on TikTok.

  • Its brands have easy-to-use platforms that offer fast delivery.

  • The group has access to plenty of data on its customers.

  • It has no physical stores to eat into profit margins.

Ultimately, Boohoo is a retailer that is designed for the 21st century. With access to plenty of data, a strong social media presence, and no physical stores to drag down profits, it’s well placed to dominate in today’s digital world.

Don’t be put off by the valuation

Now, the thing about Boohoo shares is that they’re expensive. Currently, the forward looking P/E ratio using this year’s forecast earnings is 64. The P/E drops to 45 using next year’s forecast.

These kinds of lofty valuations put a lot of investors off Boohoo. Ignoring the stock because it’s expensive could be a mistake, however. When I covered the stock in mid-November last year, its P/E ratio was a high 49. Since then, it has risen more than 50%.

Boohoo shares: the trend is up 

Of course, Boohoo’s share price could be volatile in the short term, given the high valuation. It’s important to be aware of the risks.

However, over the medium-to-longer term, I expect the shares to keep rising. I think anyone buying today is likely to be rewarded in time.

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Edward Sheldon owns shares in Boohoo Group. 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.

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