Forget the THG share price! I’d buy this growth stock instead

The THG (LON:THG) share price is in freefall following a disasterous presentation. Paul Summers thinks this online retailer is a far better bet.

| 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.

Father playing guitar on the floor with daughter sitting beside him.

Image source: Getty Images

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.

Earlier today, my Foolish colleague Andy Ross explained why the THG (LSE: THG) share price had tanked yesterday afternoon. In a nutshell, it followed a poorly received presentation during which founder Matthew Moulding failed to give institutional investors clarity on a number of things. He also took a swipe at hedge funds supposedly betting against his business. 

Having fallen an eye-watering 65% in value in just 12 months, is this a golden opportunity for me to snap up the stock on the cheap or a warning to steer clear? I think it’s very much the latter.

THG share price: blame the shorters?

Not providing analysts with what they expect is never likely to impress. Using a platform to publicly blame hedge funds for poor performance instead feels even worse, especially as only one has actually declared a short position against the company (Psquared Asset Management). I somehow doubt it will be the last.

Instead, Moulding should really be addressing concerns that Japanese investment firm SoftBank‘s interest in the company might be waning. Given the cost involved, better justification for wanting to spin off THG’s beauty division so soon would also be ideal. The market’s reaction, while undeniably brutal, is understandable.

For me, the capitulation of the THG share price only serves to reinforce a few rules I have about IPOs, namely ‘don’t believe the hype’ and ‘wait for things to settle’. This is particularly true for unprofitable companies.

Personally, I can think of many other UK-listed growth stocks with an online focus that I’d rather invest in right now. One such candidate — musical instrument retailer Gear4music (LSE: G4M) — reported to the market this morning. 

Back on song

I’ve been a fan of this company way before the word ‘coronavirus’ entered our lexicon. Of course, we now know that multiple UK lockdowns turned out to be a boon for the York-based business. Its shares duly rose from around 150p in March 2020 to over the 1,000p mark by this July.

Since then, the volume of chatter around the stock has inevitably declined and profit-taking has commenced. Notwithstanding this, today’s update on trading over the six months to the end of September read well to me. 

At £64.7m, total sales may have been 8% below that achieved over the same period last year. However, this was always going to be a tough comparative to beat. Personally, I prefer to focus on this figure being 31% above that achieved in pre-Covid 2019. For me, this shows just how well management is executing its growth strategy. 

As one might expect, G4M hasn’t been immune to headwinds. A 16% fall in sales in Europe was attributed to “post-Brexit challenges“. On a more positive note, two new distribution centres in Ireland and Spain are now operational and should help address this going forward.

Perhaps most encouragingly, CEO Andrew Wass stated that the company was “well placed” to deal with the ongoing supply chain crisis after “deliberately” increasing inventory in advance to the tune of £30.4m. As such, G4M’s founder is confident that full-year numbers will meet analyst expectations.

With its peak trading period fast approaching and a home cinema and hifi-focused site launching in January (AV.com), I’m bullish on the outlook for G4M stock.

But quite where the THG share price goes from here is anyone’s guess. Over to you, Mr Moulding.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Illustration of flames over a black background
Investing Articles

Here’s another top buy from the FTSE 250 I’m considering

Oliver Rodzianko considers this FTSE 250 company a stellar choice for his portfolio. It's on his growth watchlist; so let's…

Read more »

A young Asian woman holding up her index finger
Investing Articles

A “once in a lifetime” opportunity for Rolls-Royce shares?

One firm is hoping now is a “once in a lifetime” opportunity for UK nuclear companies. Our writer reveals whether…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

The IAG share price is dirt cheap and profits are flying. So why am I worried?

After today's positive full-year results, I expected the International Consolidated Airlines Group (IAG) share price to be doing better than…

Read more »

Investing Articles

Is Tesla stock a steal below $200?

Tesla stock has fallen 19% so far in 2024. Currently hovering around $200, this Fool checks if now is the…

Read more »

Investing Articles

3 high-yield dividend stocks to consider for my passive income portfolio in 2024

I want to build a portfolio of dividend stocks that pay enough passive income to retire comfortably. Here are my…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Direct Line shares soar 25% on takeover bid!

Direct Line shares surged by a quarter on Wednesday, after receiving a takeover bid from a Belgian rival. But the…

Read more »

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »