The Boohoo (LSE: BOO) share price has lost around a third of its value since the end of September. That followed the decision by the company’s auditor it would no longer be working with the group, due to reputational concerns.
The company’s stock was sold off despite Boohoo’s fantastic trading figures for the year. In the six months to the end of August, the group’s sales lept 45%, and adjusted profit rose 53%.
Based on this performance, some investors have used the recent decline in the Boohoo share price to top up their holdings. However, I think there’s a high chance the shares may face further near-term turbulence.
Boohoo share price outlook
Boohoo has come under pressure this year due to concerns about the working conditions at some of its suppliers. For its part, Boohoo has commissioned an independent inquiry. It has also announced it will take a more proactive approach to supply chain management.
These developments have been welcomed by the market. What’s more, it’s clear the company’s customers haven’t been put off by the allegations.
There have also been some questions raised about the company’s corporate governance. This has been cited as the reason why the firm’s auditor, PwC, decided to step down.
In my view, all the above are a concern. I’m a big fan of the billionaire investor Warren Buffett. He believes a company’s management should do everything to maintain its reputation. He’s also said if there’s something clearly wrong with the way a business is run, it might just be the tip of the iceberg. “There’s never just one cockroach in the kitchen,” Buffett once stated.
That’s why I’m not buying the Boohoo share price. While there’s absolutely no proof the business has other problems, I reckon it’s better to err on the side of caution.
No reason to avoid the company
This isn’t a one-size-fits-all approach. If we know and understand the risks of investing in Boohoo, there’s no reason to avoid the business. The organisation is one of the fastest-growing companies listed in London. As it gobbles up other struggling brands, it doesn’t look as if the group is going to slow down anytime soon. If the firm can put its current problems behind it, I reckon we could see large profits from the Boohoo share price in the long term.
Therefore, the decision of whether or not now is a good time to buy the stock rests with each investor. If one’s comfortable investing in the fast-fashion industry, then the recent pull-back in the Boohoo share price could represent an opportunity to enter this fast-growing business at an attractive price.
On the other hand, if investors aren’t comfortable, then there are plenty of other growth stocks out there which could offer similar returns without the additional uncertainty.
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Rupert Hargreaves owns no share 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.