For most of the past couple of years, Boohoo group (LSE:BOO) was in the news for all the right reasons. The company was going from strength to strength. High-profile marketing campaigns with celebrities, strong revenue growth and a soaring share price. This year has been different. The Boohoo share price has seen sharp plunges three times in 2020, all for different reasons. But is this now a stock to steer well clear of, after another big fall yesterday?
Fall down three times, get up four?
The first slump in the Boohoo share price was in March when the pandemic was really starting to hit in the UK. An ensuing national lockdown and furlough schemes meant consumer demand fell. With people concerned about money, investors sold out of stocks and went into safer assets such as gold. But Boohoo managed to bounce back from this slump, as investors quickly realised that fast fashion from online retailers actually was performing well.
The second slump came in July, thanks to reports surfacing of poor working conditions in a factory in the midlands. There were also allegations of low pay, all of which reflected poorly on Boohoo and the suppliers it chose to use. The share price almost halved by mid-July. With the firm making changes and accepting the need for greater awareness, the Boohoo share price again recovered. This was also helped by some strong mid-year profit figures, up 51% from the same period last year.
The third fall is the one we saw yesterday. Accountant PwC announced it would no longer audit the accounts for Boohoo, after doing so for the past six years. It cited reputational concerns, likely due to the above point mentioned from the summer. As a result, the share price dropped sharply in trading yesterday, putting the share price back around 250p.
Why I’m still positive on the Boohoo share price
I’ve bought and sold Boohoo stock already this year, and know of others who have bought one of the dips and made very good returns in only a short space of time. I’ll be buying back in to the company next week when I have funds available, as I’m still positive about the stock going forward.
For investors, reputational concerns are important, but ultimately the bottom line is what really drives a share price. Given that Boohoo is performing very well financially, I expect investors to buy the current dip in the share price, as they have done twice this year already. Until its finances start to be hampered significantly from reputational concerns, I don’t see the share price being materially depressed. With the share price quickly recovering from the previous two tumbles, it shows that there is strong long-term demand to buy the stock when some view the valuation as being cheap.
Add to this the success the firm has enjoyed even during the pandemic so far. Active customers have risen by 34% this year, showing the benefit of being an online retailer. So even with tiered lockdowns looking likely over the winter, Boohoo should be able to continue to operate at a profitable level.
I’m still positive on the stock, and think it represents a good buy for investors on any dips seen.
