Key points
- Revenue and profit, among other metrics, indicate consistent business growth
- The company is taking steps to address recent issues
- Using the price-to-earnings ratio, Boohoo stock is cheap
Shareholders in Boohoo group (LSE: BOO) have become increasingly frustrated with the last year’s share price action. From February 2021 until now, the Boohoo share price has fallen over 75%. This is a major collapse. With encouraging fundamentals and other positive news, however, I think now could be a good buying opportunity. What’s more, this stock is cheap. Should I add this firm to my portfolio? Let’s take a closer look.
Solid fundamentals
The Boohoo share price is underpinned by solid and consistent fundamentals. For the year ending February, revenue has increased from £294m in 2017 to £1.7bn in 2021. This represents nearly six-fold growth.
Furthermore, profit before tax has followed a similar trend. In 2017, this figure was a mere £30.95m. By 2021, however, this had grown to £124.7m. As a potential shareholder, this gives me confidence that the business is going in the right direction. I hope that this growth will soon be reflected in the Boohoo share price (but not before I buy!)
In addition, earnings-per-share (EPS) have increased over the same period from 2.23p to 8.89p. Using the compound growth formula, that calculates constant movement on an annualised basis, EPS has risen 31.9% annually.
On the flip side, Barclays recently downgraded the firm on account of “a laundry list of headwinds”. These include supply chain issues and high returns rates. I view these as fundamentally short term in nature and expect them to subside soon. In particular, the business has taken measures to address labour abuse allegations by building its first factory to manufacture clothing and teach good practice.
Why the Boohoo share price is a bargain
A good metric for assessing the cheapness of shares is the price-to-earnings (P/E) ratio. The Boohoo P/E ratio is currently 12.26. ASOS, its nearest comparable retailer in UK online fashion, has a P/E ratio of 15.81. This tells me that while Boohoo may be a riskier investment, it is also much cheaper than competitors and the online retail sector as a whole.
That being the case, it is possible that the share price may soon increase on account of constant sales growth (sales rose 10% for the three months to the end of November 2021). This is compounded by the impressive fundamentals the company has displayed over the past five years.
This firm has not been without its troubles of late. What is heartening, however, is to see management tackle these issues head on. I see the fundamentals as extremely attractive and the share price as cheap. So I will be buying shares in this exciting growth stock as soon as possible.
