Why the THG share price keeps on falling

The THG share price has collapsed by 83% in one year, sending its stock plunging from almost 840p to below 130p. Is THG in bargain-bin territory now?

| 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.

Shareholders in THG (LSE: THG) have endured a gut-wrenching 16 months. Shares in the Manchester-based e-commerce company, formerly known as The Hut Group, have soared and then plunged. When the THG share price neared 840p in January 2021, its investors must have been in heaven. A year later, they’ve gone through hell. Here’s what went wrong for THG and how I feel about the stock today.

The THG share price soars and then slumps

Founded in 2004 to sell CDs, Manchester-based THG runs nearly 200 websites selling direct to consumers via its custom e-commerce platform. Its three main divisions (health, beauty and nutrition) sell products such as cosmetics and protein shakes. When THG floated in London on 16 September 2020, it priced its shares at 500p, valuing the business at £4.5bn and raising £1.9bn for the company and its owners. At its first-day peak, the THG share price leapt to 658p (+31.6%), before closing at 625p (+25%). This valued the group at £5.6bn.

But THG’s share price kept rising, driven higher partly by belief that THG Ingenuity — its proprietary e-commerce technology — was a hidden gem. Eventually, THG stock hit a record high of 837.8p on 12 January 2021. With the stock up 67.6% since listing, THG’s founder, executive chair and chief executive Matthew Moulding became a paper billionaire. Nice.

Over the next eight months, the share price drifted downwards, closing at 684p on 7 September 2021. Unfortunately, it was brutally downhill from there for THG’s shareholders as the stock plunged repeatedly. In five weeks, the shares lost almost 60% of their value. When I wrote about THG on 14 October, it had collapsed to 281.4p, crashing 57.7% in under five weeks. This followed a disastrous investor presentation on 12 October, when rash remarks by Moulding sent the stock southwards.

THG keeps on falling

On Friday, the THG share price closed at 126.5p, roughly a quarter (25.3%) of its 500p IPO price.  This valued the business at just £1.54bn. Also, the stock hit an all-time low of 118.3p on 24 January, before recovering to close at 121.3p. Obviously, this has been a catastrophic 12 months for the group — and partly for the reputation of the London Stock Exchange. Alas, the shares weren’t helped by an uninspiring trading update and profit warning on 18 January. Here’s how this stock has performed over five time periods: One day: -7.1% | Five days: -14.5% | One month: -44.8% | Six months: -78.2% | One year: -82.9%.

So far, nothing has stopped the ongoing decline in the THG share price. But THG’s sales growth is very robust, so it might well grow its way out of its current troubles, despite declining margins. Also, the group has the backing of a major investor: Japanese tech giant SoftBank. SoftBank invested $730m in THG in May at a share price of 596p, giving it an option to buy 19.9% of THG Ingenuity for $1.6bn within 15 months. Conceivably, Softback might bid for the whole group, plus THG has plans to spin off its dominant beauty business in a separate London listing this year.

I don’t own THG shares today, but I wouldn’t buy them at the current price. However, if the share price keeps falling, then I’d be tempted to buy at around £1. After all, boss Matt Moulding might decide to take his baby private again by offering a price premium to current shareholders. And almost anything can happen when formerly high-flying shares are cast into the bargain bin!

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.

Cliffdarcy 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

Investing Articles

Up 670% in 2 years! This former penny share is skyrocketing on SpaceX contracts

Shares of Filtronic (LON:FTC) were soaring to multi-year highs today after another contract win with SpaceX. Should I buy this…

Read more »

Investing Articles

Why is the Greatland Gold (GGP) share price up 10% today?

Our writer looks at the reasons why the Greatland Gold (GGP) share price is the AIM 100’s best performer today.

Read more »

Passive income text with pin graph chart on business table
Investing Articles

What do I need for a passive income of £100k a year?

How much would I need to invest to collect a very healthy yearly passive income on my retirement? Surprisingly, the…

Read more »

US Stock

£2k invested in Nvidia stock 2 years ago is now worth this boggling amount…

Jon Smith details how much unrealised profit an investor would have from buying Nvidia stock but is cautious about what…

Read more »

Investing Articles

2 value stocks that still look cheap despite the FTSE rally!

Harvey Jones picks out two UK value stocks that still look nicely priced even as the UK index climbs. He…

Read more »

Dividend Shares

I asked ChatGPT to build the perfect passive income portfolio and here’s the result

Jon Smith turns to the world of AI to try and find out whether ChatGPT could build an investor a…

Read more »

Investing Articles

£20,000 to invest? Here’s how the FTSE 100 could deliver a £2,040 passive income

Here are two ways that investors with a lump sum to spend could target a large passive income with FTSE…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s how someone could start investing in 2025 with just £1,000

Planning to start investing in 2025? This writer highlights two very different stocks that might be worth considering for a…

Read more »