Boohoo (LSE:BOO) is recognised as one of the pioneers of fast fashion. The boohoo share price has been on a downward trajectory for a while, however. Could the shares rebound and is this an opportunity to buy cheap shares for my holdings?
Boohoo share price implodes
Boohoo has seen its success derive from marrying two things together. These are the rise of online shopping and fast fashion. More and more consumers shop online for essential goods, including clothing and footwear. Boohoo has boosted the fast fashion market by replicating high end fashion trends by mass producing them at a low cost and selling them at a low price point.
Boohoo shares benefited after Covid-19 restrictions meant many of us were unable to go out to our favourite shops. This forced many more consumers to turn to online shops. The shares reached 400p in June 2020. As I write, the boohoo share price is almost a penny stock, trading for 102p. At this time last year, the shares were trading for 342p, which is a 70% drop over a 12-month period.
So what happened to boohoo shares? Well, a mixture of macroeconomic issues, scandals, and dwindling profit margins are to blame, in my opinion. From a macroeconomic perspective, rising interest rates and cost of materials have hampered margins and performance. In addition to this, the supply chain crisis won’t have helped. A scandal around dubious supplier practises and labour abuse definitely spooked investors last year. Finally, a lawsuit in the US accusing the firm of sham discounts has further deepened boohoo’s woes.
Rebound potential or one to avoid?
The boohoo share price reached its highs due to its quite remarkable journey to date. It started as a market stall in the North West, to a multi-million pound fashion business with partnerships with some of the biggest pop culture names on the planet. I understand that past performance is not a guarantee of the future, but it must not be ignored. In the last five years, boohoo’s revenue has increased sixfold! In addition to this, profits have grown by close to 400% in this same period. A recent update in December mentioned a profit warning but sales were still strong and up, compared to the same period last year.
My focus is on whether or not boohoo is attempting to address the issues that have led to the share price crashing so badly. The labour abuse issue at one of its suppliers was particularly damning. Well, boohoo is currently building its first ever production facility. In addition to this, it will be used as a supplier training centre too. So it looks to me like it is taking the necessary steps to rectify this major wrong.
Boohoo can’t control macroeconomic issues. I can’t help but think as the pandemic eases, the supply chain issues could be less of an issue and this could boost boohoo shares. However, rising costs could hamper the boohoo share price due to profits being squeezed.
Overall, I believe the boohoo share price could head upwards once more but I don’t think it will experience the highs of 2020 for some time. Personally, I wouldn’t add the shares to my holdings. There is still some work to go to restore investor confidence, and macroeconomic issues it cannot control put me off. I will keep an eye on developments, however.
