In 2020, the Boohoo (LSE: BOO) share price charged higher as the company prospered in the pandemic. The stock returned 20% throughout the year as the fast-fashion e-tailer capitalised on the retail environment.
However, the stock has failed to repeat this performance in 2021. Year-to-date, it’s shares have fallen 24%. Over the past 12 months, the stock’s declined 16%.
As I noted two weeks ago, there are a couple of reasons why investors have recently been selling the stock.
The company is fighting a lawsuit in the US regarding its product pricing. Meanwhile, here in the UK, the group has been repeatedly criticised for its working practices.
Considering these challenges, investors seem to be rethinking their opinion of the enterprise. Previously, the market has been willing to pay an average price-to-earnings (P/E) ratio of 50 to buy into Boohoo’s growth story.
Today investors can buy the Boohoo share price for just 24 times forward earnings. That is a discount of more than 50% to its long-term average.
I think this presents an exciting opportunity.
While investors have been giving the company a wide berth, it’s doubled down on its growth strategy. The group has been investing heavily in marketing to drive sales and, throughout the pandemic, acquired a number of failed brands to add to its portfolio.
These initiatives are yielding results. In the three months to the end of February, group sales increased 39% year-on-year. Net income jumped 37% year-on-year.
City analysts are expecting the group to report earnings growth of 38% for its current financial year.
Based on these projections, and considering the company’s current valuation, the Boohoo share price looks to be selling at a PEG ratio of less than one. This could imply the stock offers growth at a reasonable price.
City analysts are projecting further earnings growth for the 2023 financial year. They believe earnings per share can expand a further 26% in the next financial period.
Based on this estimate, the stock’s trading at a forward P/E ratio of 19. This is one of the lowest multiples I’ve ever seen attached to the Boohoo share price. And I’ve been covering the stock since 2014.
The company looks even cheaper when I strip out its £258m cash balance.
Boohoo share price opportunity
Of course, these are just projections. There’s no guarantee the company will hit the City’s growth targets over the next two years.
Challenges such as rising material costs, labour costs, and economic uncertainty could all hold back group growth. And if the corporation does underperform, its valuation could become a lot less attractive.
Still, even after taking these risks into account, I think the Boohoo share price looks incredibly desirable at current levels. As such, I’d buy a speculative position for my portfolio, considering its growth potential and valuation.
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Rupert Hargreaves 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.