The Boohoo share price could be the steal of the decade

The Boohoo share price has been an underperformer recently, but does that present an unparalleled buying opportunity for a UK investor like me?

| 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.

As I wrote last month, I think Boohoo Group (LSE: BOO) could be one of the three best stocks to buy now. I highlighted that the shares had fallen 70% in the previous 12 months so were cheaper than they were five years ago. With the Boohoo share price continuing to fall since then, my belief that the shares could be the steal of the decade has solidified.

The pros and the cons

The cons of investing in Boohoo have been well covered in recent months — ESG concerns, high levels of customer returns, supply chain issues, cost of living crisis and slower US growth. In other words, a lot for management to deal with. However, there seems to be a bit of a case of kicking a man when he’s down and without meaning to mix my metaphors, commentators and analysts jumping on the bandwagon. The herd thinks Boohoo is becoming ex-growth, or that growth will slow significantly. But is that really the case?

In 2019, earnings per share (EPS) grew by 53.3%, in 2020 by 26.7% and in 2021 by 44%. By my reckoning that’s very impressive for an AIM-listed share. ASOS’s EPS over the same timeframe was -69.8%, +322% and -2.9%. The latter has also lost its CEO and chairman in recent months. I like ASOS as it happens, but Boohoo seems to be the more stable and consistent fast fashion e-commerce retailer right now.

The expectation is for its EPS to fall to 86.4p in 2022 and then rise back up to 118.8p in 2023. There’s the potential that if Boohoo outperforms these lowly expectations, the shares could re-rate quickly and in turn, the price could rise.

Boohoo has always reinvested into generating future growth and has not paid dividends. From my perspective, it seems the chance that it stops growing is unlikely. That’s why there could be a lot of upside to the current share price because investors’ expectations are just so low.

Is the Boohoo share price really a steal?

However, in the short term it’s nearly impossible to say whether Boohoo will reverse the falls of the last 12 months, or continue to trade at new lows. It’s a binary bet.

Looking longer-term though, the odds of the shares going up are potentially, much better. I’d only invest in a share for its long-term potential. On balance Boohoo’s risk-to-reward ratio looks very favourable and given the ongoing growth of e-commerce, I do think the shares are a steal at the current price. I feel the market overall is way too pessimistic about what an entrepreneurial management can achieve. Boohoo has come a long way and I think has a lot more international growth to come, as well as a strong brand in the UK – as evidenced by millennials still buying its products and by its UK sales. 

With the Boohoo share price having fallen sharply, it remains likely I’ll start to buy the shares in the coming weeks.

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.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended ASOS and boohoo group. 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

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »