Back in July, stories about Boohoo group (LSE: BOO) shares were everywhere. The share price slumped almost 50% in one week following revelations about poor working conditions at a supplier in Leicester. This came after Boohoo shares had managed to bounce back to new highs after the March stock market sell-off. At the low point, I bought in.
Just before I bought, I wrote a piece on the stock here. Even though some thought the stock was very risky, I thought it was a great undervalued buy for investors. My main reasoning stemmed from the fact that the impact of the news was more about reputational damage. This can be repaired, and ultimately isn’t as damaging as something that impacts finances instead. So how did it all play out?
Boohoo shares flying high
Since the middle of July, the share price is up circa 50%. It’s only been a few months, so I’m very happy with the return. The damage to the share price has been very limited, despite ongoing concerns about working conditions. The independent review of Boohoo’s supply chain carried out in the aftermath has recently been released, and wasn’t flattering by any means for the firm. It said that directors knew about the serious issues with working conditions long before the news story broke. But it said the firm had also been working on improvements.
New measures it has put in place have helped the share price. But what has kept the price rising is its financial results. For the period up to 31 August, pre-tax profit was £68.1m, up £22.9m from the same period last year. Another interesting figure from the trading update was that the number of active customers has risen by 34% over the past year. Lockdown has contributed to the rise in online shopping, but this is still an outsized increase. As a result, Boohoo shares are now trading back around 350p. These are levels not far away from where the stock was trading before the news broke in July.
What should you do now?
If you bought Boohoo shares when I did back in July, you’re probably equally as happy. Looking ahead, I still think there’s further upside for the share price so would suggest holding on. The firm has showed resilience during the lockdown earlier this year. This gives me confidence that even if another lockdown is around the corner, the business will be able to perform. We also have Christmas looming, a key revenue source for retailers.
It may surprise you to know that I’m having to sell my shares in Boohoo. I need the funds to help a friend with a deposit for a home. I think this speaks to a couple of broader investment lessons.
Firstly, never be upset with selling for a profit. If I could, I’d hold the stock for years to come. But as I can’t, I’m still happy to have made a good return during my holding period. Secondly, never forget that your investments are there to fund other pursuits. We all invest because we enjoy it, but ultimately we have a goal in mind (early retirement, house deposit, etc). There’s nothing wrong with selling a stock when this goal is reached.
