The Boohoo (LSE:BOO) share price is currently at 91p. Down 72% in a year, the slump has slowed somewhat over the past month. Here are a couple of reasons why I think the long-term direction for the fashion brand is higher.
Boohoo shares building on strong results
The trading update released earlier this month seems to indicate that the full-year audited accounts will show growth in key metrics.
For the 12 months ended February, net sales growth is expected at 14% over one year and 61% over two years. Specifically in the final quarter, gross sales growth was noted as being strong. In percentage terms, this is reflected via a 26% increase versus last year and 57% up on two years ago.
I get that one reason for the Boohoo share price falling in 2021 was partly the revision lower of growth figures in previous updates. This is frustrating, but if I take the figures at face value, many other fashion firms would swap their results and take double-digit net sales growth in a heartbeat!
My point here is that I think the Boohoo share price reflects uncertainty and uneasiness that future results might be downgraded. This is a risk, but I’m focused more on what is actually being achieved. On the basis of the trading update, this is a growing company that’s doing well.
Short-term problems, long-term vision
It’s easy to get caught up in short-term issues. In fact, the stock market is known for having a very short vision. What this means is that stocks can be undervalued or overvalued due to fear or greed. In the long run, the price usually returns to the fair value.
I think this is the case with the Boohoo share price. It does have problems relating to supply chain issues. This is causing longer than normal delays in deliveries, particularly into Europe. Inflation is another problem at the moment, causing costs to increase.
Yet do I think these issues will still exist in two, three or more years down the line? Not really. The Bank of England’s forecasts expect inflation to return close to target next year. Supply chain bottlenecks are a more complex issue. Yet it’s in the interest of all parties to get these resolved as soon as possible.
From that angle, I think that Boohoo shares should be able to move higher in the future.
The main risk to my view is the subjectivity of it. My opinion on the short-term problems fading is just that, my opinion. If these become a longer-term thorn in the side of the business, then the Boohoo share price could stay in the doldrums for a longer period than I expect.
Ultimately, I do like Boohoo shares at the current price and so will consider buying when I have free cash available.
