The Hut Group share price is falling! Here’s why

Jabran Khan explains why The Hut Group share price is falling and decides whether this is an opportunity to add cheap shares to his portfolio.

| 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.

Online retailer The Hut Group (LSE:THG) had a day to forget yesterday. The Hut Group share price tumbled after an update on its strategy. In fact, it has been a tough month for THG. So what’s been happening? Should I look to add the cheapened shares to my portfolio?

The Hut Group share price tumbles

The Hut Group held a virtual capital markets day yesterday. The main purpose was to win investor buy-in for its 2030 sustainability strategy. I don’t think anyone could have foreseen what came next. A mass sell-off of shares wiped close to a third from THG’s market cap.

I believe investors weren’t buoyed by the update and there were concerns that Japanese investment giant SoftBank’s support for The Hut Group was cooling. The Hut Group share price tumbled due to the mass sell-off and investor unrest. Monday’s closing price was 437p per share. By the time trading closed yesterday, shares fell to 285p per share. That wiped off £1.85bn from its market cap. As I write, shares are trading for 280p per share. At this time last year, shares were trading for 595p per share.

It’s been just over a year since THG first floated on the London Stock Exchange in September 2020. It floated for a 500p per share price starting point, valuing the business at £4.5bn. Have the wheels come off or could things bounce back?

Recent events and investor sentiment dampened

A few key events in recent months have caused The Hut Group’s share price volatility in my opinion.

THG’s Ingenuity platform is a technology based e-commerce platform that it is selling to other businesses for them to increase their online presence. In May, THG entered into a joint venture with SoftBank which valued the tech division at $6.3bn. This is more than the entire value of the THG’s business following the share price fall yesterday. Shares were riding high trading for over 600p per share when the deal was announced.

Last month, The Hut Group share price began to fall. Results for the first half of the year were announced. In these results, THG announced it would be separating its Ingenuity tech division from its origins, which were beauty and nutrition. This announcement did not go down well with investors. To make things worse, a few weeks ago independent research provider The Analyst released a report expressing concerns about the prospects for Ingenuity. Since these results and the trading report, the share price has fallen by more than half.

At yesterday’s virtual capital markets day, THG said SoftBank would not be exercising the option to buy a near 20% stake in THG’s Ingenuity early. This option was part of the original deal. This seemed to spook investors and the sell-off began. I believe investors are concerned about the future financing of the business.

Buy or avoid?

There has been chatter that The Hut Group’s share price has been under attack from short sellers to drive the price down. THG even released a statement this morning to address the share price drop. Right now, I will keep a keen eye on developments but the tumbling share price and investor sentiment has led me to decide to avoid buying any shares just now. That doesn’t mean I would not buy in the future, however.

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.

Jabran Khan 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

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 »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »