Boohoo (LSE: BOO) shares rose 15% in the past year. There is an increasing trend of online shopping in the past few years. I want to look deeper into the company to decide whether now is the right time to buy the stock.
Boohoo shares’ fundamentals
The company’s revenue growth has been strong. In the recent trading update released in January, revenue for the four months ended 31 December 2020 grew by 40% year-over-year to £660.8m. Growth has been strong in all the regions the company is operating in. UK revenue grew by 40% year-over-year to £357.2m, US revenue grew by 52% to £167.7m, rest of Europe grew by 30% to £90.4m, and the rest of the world grew by 20% to £45.5m. The group’s revenue for the 10 months ending 31 December 2020 grew by 42% to £1.47bn.
The management’s outlook is also strong for the future. The group’s revenue growth for the financial year to 28 February 2021 is expected to be 36% to 38%. This is better than the company’s earlier estimate of 28% to 32% growth. Taking into consideration the slowing growth in most companies, I believe this is very positive.
Another important metric is the profits of the company. The group continues to expect to deliver adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) margin at around 10%. The management’s medium-term guidance is 25% sales growth per annum and a 10% adjusted EBITDA margin. The company has a stable balance sheet as it had net cash of £386.9m.
Boohoo shares’ recent acquisitions
The company has agreed to acquire all of the e-commerce and digital assets and associated intellectual property rights, including customer data, related business information, and inventory of the Burton, Dorothy Perkins and Wallis brands from Arcadia Group Limited. Boohoo will pay £25.2m from its cash resources. In addition to the strong brands, the deal will significantly increase the company’s active customers. Another advantage is it helps to grow Boohoo’s market share across a broader demographic.
Another important recent acquisition is the intellectual property assets including customer data and related business information and selected contracts of Debenhams for £55m in cash. The company is not acquiring any stores or stock. The deal will help the company to increase online market share along with expansion into the beauty, sports, and homeware market.
Risks to consider in Boohoo shares
The company’s recent acquisitions might incur some additional costs in the near term, and there’s no assurance they will add value to the company. Boohoo might also be a victim of the cut-throat competition in the online retail space. The UK government is also planning to implement a 2% online sales tax on e-commerce sellers and marketplaces. The online tax could have a negative impact on online retail companies including Boohoo.
Boohoo shares are currently trading at a price-to-earnings (P/E) ratio of 55. In spite of the various advantages of investing in the company, I would like to wait for a lower entry price as I feel the P/E ratio is expensive at the moment.
