The Motley Fool

Can the Boohoo share price recover after 47% fall in 6 months?

A stock price graph showing declines, possibly in FTSE 100
Image source: Getty Images.

The Boohoo (LSE: BOO) share price is now treading dangerously close to its pandemic low price of 180p. This is a 47% fall from just six months ago. What went wrong? And what should I do about the Boohoo share price?

Boohoo’s first-half (H1) results for FY2022 (six months ending 31 August 2021) triggered a 30% fall in share price, from 256p to 180p. Do the results warrant such a steep fall? Yes and no. I say this because there are some very positive signs but also some major concerns.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Boohoo share price positives

For a predominantly e-commerce driven company, Boohoo’s sales were expected to decline after stores opened up post-pandemic. But, surprisingly, sales in the last six months have outstripped H1 2021, a period marked by a massive online sales boom. The business posted £976m in sales in H1 2022, up 20% compared to the same period in FY2021. Current sales figures are up 73% compared to pre-pandemic FY2020 levels.

The expansion efforts of the company also look positive. Boohoo launched four new brands in 2021 and acquired British retail staple Debenhams. This looks like a very prudent move to me as Debenhams has a different target market to Boohoo. This move could drastically increase market visibility and share in the future.

Its expansion efforts to the US have also proven fruitful, with market share doubling in the region in the last 12 months. To capitalise, Boohoo plans to open a distribution centre in North America by 2023.

Reason for the decline

Among the positives, traders noticed some glaring holes in Boohoo’s latest financial report. The earnings before interest and taxes (EBIT) went down 19%. This caused a 20% drop in pre-tax profits and a 15% drop in diluted earnings per share. Its cash reserves took a £246.5m hit after acquisitions and currently stands at £98m.

Boohoo’s management points to Covid-19 disruptions as the driver behind this decline in EBIT and profits. When companies experience a revenue surge but a drop in profit, margins are usually to blame.

Inflation in logistics costs is a huge concern in the medium term for the Boohoo share price. The group is looking to minimise the rising costs of shipping, logistics, and labour “through implementing more advanced automation in its existing distribution centres”. However, as a result of increasing costs, Boohoo lowered its target for profit margins for FY2022 to 9%–9.5% from 9.5%–10%. 

Further concerns

Boohoo operates in a very competitive space and is fighting for a larger market share with retail staples like H&M and ASOS in the UK. Its expansion to North America also brings it onto the radar of giants like Nike, Macy’s, Forever 21, and Urban Outfitters. For a relatively new business established in 2006, this looks like a tough climb to me.

Boohoo share price verdict

Despite the share price crash and rising logistic costs, I remain optimistic. Boohoo has established itself in a crowded space relatively quickly. The company checks a lot of my boxes. It is expanding fast, increasing sales year over year and has a very robust online presence.

Boohoo can benefit from its investment in automated warehousing to reduce logistic costs. Its current share price is close to pandemic lows. And I think a market crash is a much greater immediate threat than increasing shipping costs. Factoring this in, I would consider an investment in Boohoo today.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Nike. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.