On Friday, the Boohoo (LSE: BOO) share price jumped over 13%. This came after a sharp drop the day before due to the release of its Q3 results. The Friday rise was good news for investors in the short term. However, over the past year, the Boohoo share price has severely underperformed, dropping 60%. In addition to this, today the shares have sunk around 4%. With the shares falling so much over this period, is now a good time for me to buy? Let’s take a closer look.
After the initial release of the results on 16 December, Boohoo shares plummeted over 25%. This was due to a reduction in the firm’s EBITDA and net sales outlook. However, the next day, the shares shot back up. I think this is because investors realised the results weren’t as bad as they seemed.
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For the three months to 30 November 2021, gross sales rose by over a quarter. These sales also rose 58% and 102% compared to FY21 and FY20, respectively. These positive numbers have primarily been due to robust demand for products in the UK market. In addition to this, the business was able to largely increase its market share during the pandemic. Being an online-only retailer, customers flocked to buy Boohoo products as physical stores stayed closed.
I think this could play to Boohoo’s strength in the next few months too. With the recent news of the Omicron variant, the UK government is considering tightening restrictions. If this goes as far as another lockdown, it could help boost Boohoo’s sales yet again. I would also expect this to help the Boohoo share price keep climbing higher.
However, in the Q3 results, CEO John Lyttle highlighted the “disruption due to the pandemic” that was hindering growth in international markets. Although growth in the UK seems encouraging, Boohoo may struggle if it cannot boost its international demand. If growth does stall, I would expect the Boohoo share price to tumble further.
Share price concerns
The company still faces other challenges too. Boohoo has been in the spotlight continuously over the past year with multiple news stories denting its corporate reputation.
For example, a factory in Leicester that Boohoo was supplied by was reportedly paying workers as little as £3.50 an hour. In addition to this, the firm has been embroiled in a lengthy US lawsuit regarding fake advertising.
Both of these factors are also behind the disappointing Boohoo share price performance over the past year. Although the firm is making moves towards becoming more transparent and open, it can take substantial amounts of time to mend a damaged reputation. This could deter potential investors for years to come.
Another concern I have for the Boohoo share price is its value. Even after falling so heavily throughout the last few months, the price-to-earnings ratio is still very high at around 26. This seems expensive to me, even when considering the good results.
For me, the Boohoo share price doesn’t look all that appealing. I think the results issued by the firm were solid, but many investors are worried about the ongoing effects the pandemic will have on the firm. In addition to this, trading at 23 times earnings, the share price isn’t exactly cheap. Therefore, I won’t be adding Boohoo shares to my portfolio any time soon.