Boohoo (LSE: BOO) shares have had a great run recently. Since mid-July, when the stock was hit by reports of poor working conditions at factories linked to the company, Boohoo’s share price has risen by more than 70%.
I still see the shares as a ‘buy’ today, though. Crunching the numbers, I think Boohoo’s share price could potentially rise another 30%, to near 470p, over the next 12 to 18 months or so. Here’s my investment thesis.
Boohoo: fashion retailer for the 21st century
Boohoo has a number of things going for it right now. For a start, as an online retailer, it’s well positioned to benefit from the shift to e-commerce. Secondly, as a manufacturer of loungewear (joggers, leggings, etc.), it’s well placed to benefit from the work-from-home trend. Third, as a manufacturer of very affordable clothing, it’s well positioned to capture sales in the current economic environment, where job uncertainty is high.
What also stands out to me about Boohoo is that it’s incredibly savvy from a marketing point of view. I’ve commented before that its brands have enormous followings on social media. But there’s more to it than this. The brands also have key partnerships with high-profile celebrities. PrettyLittleThing, for example, has a deal with TV personality Molly-Mae Hague. She has 4.8m followers on Instagram. Meanwhile, BoohooMAN has a deal with UFC star Jon Jones, who has 5.3m Instagram followers. Ultimately, I think Boohoo is a very clever company. It knows how to succeed in today’s world.
Incredible growth
Boohoo’s sales skills are reflected in the group’s half-year results, which were issued earlier this week. Highlights of the results included:
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Revenue growth of 45% to £816.5m
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US revenue growth of 83%
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Profit before tax growth of 51%
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Adjusted diluted earnings per share (EPS) growth of 56% to 4.53p
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A 67% increase in net cash to £345m
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An increase in the revenue growth forecast to 28%-32%, from 25%
Overall, these were great results. They show the company has significant momentum right now, not just in the UK, but also internationally.
Boohoo share price target
Analysts currently expect Boohoo to generate earnings per share of 7.5p this year. However, I believe it will easily beat this – H1 earnings alone were 4.53p. Realistically, I think EPS could be 8p+ this year. Assuming Boohoo can grow EPS 30% the following year, we could be looking at EPS of 10.4p for the year ending 29 February 2022.
Give the stock a P/E ratio of 45 on EPS of 10.4p, and we’re looking at a share price of 468p. That’s about 30% higher than the current share price.
I’ll point out that I’m not the only one who expects Boohoo’s earnings, and share price, to surge. Paul Scott at Stockopedia said earlier this week that he believes Boohoo is heading for EPS of 10p, and “probably double that within another two to three years.” He believes Boohoo shares could be worth 800-1,000p in the medium term.
Risks
Of course, there are risks to the investment case. One risk is the group’s supply chain. It needs to ensure that it sorts out the issues there. Another is the rising level of competition in the fast fashion space. This is something to keep an eye on.
I’d buy Boohoo shares now
Overall, however, I think the investment case remains compelling. I see Boohoo shares as a ‘buy’.
