The last 12 months have been pretty rough for the Boohoo (LSE:BOO) share price. After the revelation of several operating scandals in 2020/2021, combined with management lowering its guidance, the stock has pretty much tanked – by 75%, to be precise.
That’s obviously left quite a bitter taste in the mouth of shareholders. But has this actually created an amazing buying opportunity for my portfolio? Let’s take a closer look at what’s going on and whether a lump sum investment like £3,000 is a smart move.
Why did the Boohoo share price crash?
The downward trajectory all started in mid-2020 when pretty scathing allegations of modern-day slavery emerged. Boohoo’s suppliers were accused of illegally underpaying staff while simultaneously exposing them to unnecessary Covid-19 risks.
The revelation led to many ESG funds divesting their positions from the group. And with its reputation tarnished, it seems many shareholders understandably followed suit. Jump ahead a couple of months, and management revealed that the re-opening of brick & mortar clothing retailers has had a notable impact on growth. And this only added more fuel to the fire.
Reputation takes years to build and only moments to destroy. This story is a perfect example of that. And I’m not surprised to see the Boohoo share price get crushed as a result. But as the famous contrarian investor Nathan Rothschild once said, the best time to buy is when there is “blood on the streets”. Does that make Boohoo a perfect candidate for my portfolio?
The contrarian bull case
I’m very doubtful that Boohoo, and subsequently its share price, will recover from the reputational mutilation overnight. But management appears to be taking the necessary actions to repair the damage and prevent such a scenario being repeated.
The company was swift to order an independent review, which recommended 34 necessary changes to operations. As of September 2021, 28 of these have been completed, with the others expected to be fully integrated this year.
Turning my attention to the growth figures, it’s true that things have started to slow. However, it’s worth remembering that the pandemic created a pretty unique and favourable operating environment for online retailers. That’s created some pretty tough comparables. However, despite this, the latest earnings report shows a 16% growth in the top line over the first nine months of its 2022 fiscal year. And compared to pre-pandemic levels, sales are up 65%.
This growth is largely attributable to its primary UK division, which grew by an impressive 32%. Yet the performance was ultimately dragged down by slower growth in the US and negative growth in Ireland and the rest of the world.
Time to buy?
With the operating environment slowly returning to normality, I’m not surprised to see some slowdown. However, does this merit a 75% slash in the company’s valuation? I don’t think so. And for a group still delivering double-digit growth, I think Boohoo’s current share price looks like quite a bargain.
Therefore, personally, I think a £3,000 investment could yield some excellent long-term results for my portfolio.
