Boohoo’s share price just crashed 15%. Is it time to sell?

Boohoo’s share price just tanked on the back of a disappointing set of H1 results. Were the results that bad? Edward Sheldon takes a look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in online fast-fashion retailer Boohoo (LSE: BOO) have delivered disappointing returns. Yesterday, Boohoo’s share price fell more than 15% after the company posted its half-year results. Over the last year, the stock’s fallen 40%.

Here, I’m going to take a look at yesterday’s results. I’m also going to look at whether, as a shareholder, it’s time for me to sell.

Why Boohoo’s share price crashed

I can see why the share price crashed after yesterday’s H1 results. There were quite a few negatives in the report. For a start, revenue for the six months to 31 August was only up 20%. This is low for Boohoo. Last year, the group posted 45% growth in H1 revenue. The year before, it posted 43% growth.

Then there was a 20% drop in adjusted profit before tax. Last year, Boohoo delivered an increase of 53%. The year before, the increase was 45%. The group said that profitability was impacted by “a number of cost headwinds driven by short-term factors largely relating to the pandemic” as well as its investment as it scales up its newly-acquired brands. It noted that shipping costs were “materially higher.”

Additionally, Boohoo said adjusted EBITDA margins for the full year are now expected to be 9-9.5%, compared to previous guidance of 9.5-10%. This is due to ongoing investments across its technology, offices, and infrastructure.

Optimistic about the future

But there were some positives in the H1 report. For example, the group said it had recently seen a re-acceleration in the rate of growth compared to that achieved in Q2 and that it expects full-year sales growth of 20-25%. This implies sales growth of 20-30% in H2.

The group also kept its medium-term targets unchanged. It’s targeting sales growth of 25% per annum and an adjusted EBITDA margin of 10%.

Finally, management was optimistic about the future. “We remain extremely confident in the group’s future growth prospects,” said CFO Neil Catto.

Boohoo shares: my move now

While Boohoo’s H1 results were disappointing, I’m going to hold onto my shares for now. Boohoo’s still a relatively young company so revenue and profit growth is going to fluctuate at times.

Looking at the results, I don’t see any major red flags. Investment costs to support growth are very normal for a young company. And many of the Covid-19 issues the company is facing, such as higher transportation and logistics costs and higher levels of returns, are impacting a lot of companies in the industry including major players like Nike.

It’s worth noting that Boohoo believes these issues will normalise in the medium term on the back of infrastructure investment and automation.

It’s also worth pointing out that over the last two years, Boohoo’s grown its revenue 73% and doubled its market share in the UK and the US. So it’s definitely heading in the right direction.

And looking ahead, there are reasons to be positive. Realistically, the world’s still very much in the early stages of the reopening process. As social activities (events, travel, etc) pick up, demand for fashion should rise.

Of course, there are risks to be aware of. For example, inflation could stick around for longer than expected, putting further pressure on profits.

I’m comfortable with the risks though. I expect Boohoo to continue growing in the years ahead so I’m going to hold onto my shares.

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.

Edward Sheldon owns shares of boohoo group. The Motley Fool UK owns shares of and has recommended Nike. 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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »