The Boohoo (LSE: BOO) share price has been one of the best growth investments to own in the market over the past five years. Since the end of April 2016, the stock has increased in value by more than 650%.
Unfortunately, despite this impressive performance, the stock has underperformed over the past 12 months. Since the end of April last year, shares in the company have returned just under 30%, compared to a return of nearly 140% for peer ASOS.
However, I think this is just a blip. I believe the Boohoo share price will return to its positive trajectory in the next few years.
The online fast-fashion retailer has reported explosive earnings growth over the past five years. Net profit has grown from just £8.4m in 2015 to 2020 for £64m.
Boohoo has been able to make the most of the pandemic. With most brick-and-mortar retailers closed, group sales jumped last year. Management has used these profits to buy up other struggling brands and increase the company’s diversification and footprint.
But while Boohoo’s growth has continued, the company has faced allegations of poor working practices. Competitors have also started to catch up to the business. The pandemic has forced brick-and-mortar retailers to invest in their online operations, increasing the number of options for customers.
So as competition grows, it seems to me that investors are less inclined to pay a high price to buy in to this company.
I think these twin headwinds are to blame for the recent performance of the Boohoo share price. And they could continue to dominate investors’ opinion of the business as we advance.
Fast-fashion is an incredibly competitive industry. Just because Boohoo has succeeded up to this point doesn’t mean it’ll continue to do so.
Nevertheless, I think the company is getting ready for its next growth spurt.
Boohoo share price opportunity
Boohoo used to be an upstart in the fast-fashion market, but that’s no longer the case. Its market capitalisation of £4.5bn makes it one of the largest listed retail businesses in the UK. This suggests to me the company has reached a level of maturity, which requires a different approach.
It needs to move away from the startup mentality, and that’s just what the business has been doing. Management has cut ties with dubious suppliers, is investing in warehousing and office space, and the firm is planning to open its own factory in Leicester.
I think all of these initiatives will help reinforce the company’s position in the market and prepare it for the next growth stage. With its new warehouse space, Boohoo will have the potential to service up to £4bn in sales every year. I think this capacity will help the organisation capitalise not only on demand for its existing products but also on the brands acquired over the past 12-24 months.
As such, I’m incredibly optimistic about the long-term outlook for the Boohoo share price. That’s why I’d buy the stock for my portfolio today.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended ASOS and 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.