The Motley Fool

The Hut Group (THG) shares: bear vs bull

Illustration of bull and bear
Image source: Getty Images.

Bearish: Roland Head

When The Hut Group (LSE: THG) gave a presentation to City analysts earlier this week, its shares fell by 35% in a day. I think the shares are probably still too expensive. Here’s why.

First of all, THG doesn’t seem very profitable. Although sales rose by 42% to £959m during the first half of 2021, the group still reported an operating loss of £17m.

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!

Secondly, around 80% of sales come from the company’s Beauty and Nutrition divisions. My guess is that these are both quite profitable. But the company doesn’t include this information its financial reporting. It doesn’t reveal the impact of its regular acquisitions — which boost sales — either.

As a result, I’m left guessing at the true growth rate and profitability of the Beauty and Nutrition operation. This makes it hard for me to put an accurate valuation on the business.

THG’s big hope for long-term growth is its Ingenuity division. This is a technology platform that provides end-to-end services for third-party brands, including retail, logistics and marketing.

Unfortunately, Ingenuity still seems to be at an early stage of growth. This division only generated £86m of revenue during the first half of 2021. It doesn’t yet make much money and might not do for several more years.

Broker forecasts suggest THG will report earnings of 2.8p per share in 2022. Even after this week’s share price crash, this prices THG shares on 100 times 2022 forecast earnings. That’s too much for me — for that price, I want to know more about what I’m buying.

Roland has no position in any of the shares mentioned.

Bullish: Rupert Hargreaves

The Hut Group has only been a public company for a little over a year, but it has quickly become a stock investors love to hate.

I can see why investors might want to avoid the business. Corporate governance issues, excessive pay and the so-called “founder’s share” issued to the chairman and chief executive, Matthew Moulding, are all potential reasons to avoid the stock.

However, I like the company because it is a tech powerhouse. In the first half of the year, the group reported revenue growth across the business. Revenues jumped nearly 45% to £959m, and it is about to enter its peak trading season.

I am excited by the company’s long-term potential. The Hut Group is one of the few retailers listed on the London market that has been built from the ground up for the e-commerce market. It is even outsourcing its services through a division called THG Ingenuity.

Japanese technology investor Softbank was granted an option to buy just under 20% of this division as part of a fund-raising earlier this year. The Japanese company was one of the first to see the potential of the Chinese e-commerce group Alibaba. So, it knows a thing or two about investing in the tech sector.

As such, while the market may be starting to doubt The Hut Group shares, I am looking past its short-term issues to concentrate on the company’s long-term potential. That is why I would buy the stock for my portfolio.

Rupert Hargreaves does not have a position in The Hut Group.

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

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.

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.