Boohoo stock drops! Is it a great opportunity as retail sales surge?

Boohoo stock is down compared to where it was in June. But retail sales have gone up in July. Does it make the apparel retailer a great buy? Anna Sokolidou tries to find out.

| 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.

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.

The Boohoo (LSE:BOO) share price is down compared to its June levels. But retail sales have surged. Does this create a great opportunity to get rich?

Retail sales rise in the UK

Belive it or not, UK retail sales in July exceeded their pre-pandemic levels by 3%. 

Retail sales, UK

Source: BBC

But let us analyse what consumers have actually started buying. Shoppers’ interest in physical stores has risen. This has been especially true of clothing. But due to the easing of some Covid-19 restrictions, online apparel sales have dropped by 7%. In my view, it could be one of the reasons for the Boohoo stock plunge. Indeed, what’s the point of ordering clothes online if you can go out and shop in a physical store? It’s quite a challenge to online retailers, including Boohoo. But how long will it last? Many countries around the world are facing repeat coronavirus infection waves. This might lead to quarantine part 2. In theory this should lead to a rise in demand for online shopping. However, if we face another lockdown, it will be problematic for economic recovery in the long term. This will also have a bad effect on consumer spending and Boohoo sales as a result.  

Boohoo stock plunge

But it’s not the only problem Boohoo is currently facing. As my colleague Karl wrote in his article, the online retailer also has to cope with reputational damage. In July, news broke of worker exploitation at factories where the companies clothes are made. Some workers faced poor working conditions related to Covid-19, and some were paid as little as £3.50 per hour. In reaction, the retailer’s shares almost wiped out their 75% gains. 

Boohoo shares

Source: Y-Charts

But isn’t Boohoo stock a great opportunity because of the plunge? 

A wonderful opportunity?

On 22 April 2020 the company reported its full-year 2019 earnings results. In my view, they were quite impressive. 

Historical financial performance, Boohoo

Source: Boohoo Group

If you look at the historical performance of the group, you’ll see that its sales and EBITDA (earnings before interest, taxes, depreciation, and amortisation) kept rising. But if you look at the growth rate, you’ll see that it reached its peak in 2018. And how about the analysts’ forecasts? Well, they all expect Boohoo to increase its sales in 2021. But by how much? Well, the consensus estimate is 19%. Not impressive, given last year’s revenue rise of 48%. So far, it looks to me that the company’s fundamentals aren’t good for the growth investor.

Boohoo’s accounting multipliers aren’t impressive either. That is, it looks like the company is somewhat overvalued. The price-to-earnings (P/E) and price-to-book (P/B) ratios of 56 and almost 12, respectively, look very high. The debt ratio is enormous too. What’s more, the company doesn’t pay dividends. All that isn’t very good for value investors.

Boohoo shares, fundamentals

Source: Shares Magazine


Online commerce is a high-growth sector. It received an even greater boost due to the lockdown. At the same time, it looks like Boohoo’s shares are overvalued and the growth rate is slowing down. Although the company is profitable right now, I’d prefer to avoid it.

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.

Anna Sokolidou 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

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

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

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

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »