Scandal-hit Boohoo has made a remarkable share price recovery. Would I invest?

The Boohoo share price recovery is incredible given the rise of ESG investing. Are acquisitions and a pledge to improve enough to make it a good investment?

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Over the past five years, the Boohoo (LSE:BOO) share price has risen an impressive 745%. There have been ups and downs along the way, but overall, long-term holders will have seen a decent return. 2020 was a particularly difficult year for the company. First the pandemic caused the March market crash. Then in July, as reported by The Independent, Boohoo was accused of modern slavery practices at two of its suppliers’ factories in Leicester. Both these incidents caused the Boohoo share price to plummet. It suffered a third dramatic fall in October after PricewaterhouseCoopers (PwC) resigned as its auditor on the back of the slavery scandal.

Share price recovery

Boohoo’s share price has since recovered yet again, so it seems investors are quick to forgive and forget when it comes to fast fashion. Or perhaps that’s just this company in particular. I think it may be because Boohoo appears to have an excellent relationship with its target market, which has undoubtedly helped in its growth trajectory.

As long as this market continues to buy its clothes, then the Boohoo share price has the potential to rise. And with its rapidly expanding selection of fashionable clothes for sale, this could well prove true. In 2020, Boohoo completed the successful acquisition and integration of both Oasis and Warehouse. This was the latest in a long line of successful acquisitions.

Boohoo financial fundamentals

At the time of writing, the £4bn company has a price-to-earnings ratio of 60, and earnings per share are 5.5p. It doesn’t offer a dividend.

The multi-brand retailer enjoyed excellent trading performance in the final four months of 2020. As such it has increased its guidance for group revenue growth to come in around 36% to 38% for the period ending 28 February 2021.

ESG investing

The slavery scandal was terrible, but its seriousness to investors should not be understated because environmental, social, and corporate governance (ESG) investing is such a hot topic. It refers to the sustainability and ethical approach companies take to running their business. It also considers how diverse the company is and how damaging its carbon footprint. Companies that are seen to break from this ESG code, or endure reputational damage due to poor conduct, are likely to suffer. Being a relatively new phenomenon, the stage is still being set and repercussions a balancing act. The consequences may be fleeting, but equally they could be fatal. As many firms jump through hoops to wave the ESG flag, others are gaining ESG rankings for questionable reasons.

That’s why the scandal really shook the Boohoo share price and I think it’s incredible it didn’t do more damage. Many more investors are jumping on the ESG bandwagon with a greater number of ESG funds available. When funds eject companies because they don’t meet the criteria, this can become problematic.

Putting things right

In its January trading update, Boohoo confirmed it’s making excellent progress on building a state-of-the-art manufacturing facility in Leicester. It’s also identifying ethical suppliers and focussing on setting a new industry-wide standard for ethical supply chains. It seems to me that it’s attempting to put the scandal behind it and make good on its reputation. With so much at stake, that seems the sensible approach. I think Boohoo shares are expensive and it’s still facing external challenges. With the ongoing Covid-19 battle and uncertain outlook in Britain, I won’t be buying. 

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.

Kirsteen 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.

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