Is time running out to buy boohoo shares below 100p?

The boohoo share price has declined to penny stock levels this year for the first time since 2016. Is this a golden opportunity to buy cheap shares?

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The boohoo (LSE: BOO) share price has collapsed by more than 73% over 12 months, making it the second biggest faller in the FTSE AIM 100 index. Do the online fast-fashion retailer’s difficulties mean I should stay away? Or do growing sales make boohoo shares a value investor’s dream at penny stock levels?

Let’s explore whether I’d buy boohoo stock today.

Why boohoo’s share price could rise above £1 soon

Despite recent struggles, there are signs the boohoo share price could be bottoming out. Since touching a 52-week low of 63.32p on 7 March, the shares have staged a recovery over recent weeks and now trade above 90p.

Growth in net sales for the three months to the end of February hit 7%. Additionally, the Manchester-based group expects adjusted EBITDA of £125m for the latest financial year. I’m keenly awaiting the company’s preliminary results on 4 May, which could prompt upward movement in the boohoo share price, if targets are hit.

In further positive signs, company insiders snapped up 130,670 shares over the past 12 months. Non-executive director, Iain McDonald, bought over £300k of the company’s shares at 103.1p each, suggesting insiders see value in boohoo stock at current prices. Total insider ownership currently sits at 24%. This creates strong incentives for good performance.

The fashion e-commerce market has grown consistently over the past five years. Many analysts expect this trend to continue. With a recent expansion into five Asian countries and an enviable list of brands to its name, including Nasty Gal, PrettyLittleThing, and Debenhams, Boohoo could be well positioned for a brighter future.

Headwinds for the shares

boohoo shareholders have become accustomed to bad news since the company was rocked by allegations of poor labour practices in 2020. Factory workers in Leicester were earning as little as £3.50 per hour according to The Sunday Times.

boohoo’s troubles don’t end here. Supply chain bottlenecks and increased freight costs have hit the retailer’s profitability. Moreover, it has faced difficulties in recent months as customer returns have increased. The company expects this to continue for some time.

Longer term, the shares also face intensified scrutiny from ESG-conscious investors. According to IHS Markit, the fashion industry is responsible for 8%-10% of global greenhouse emissions. And 60% of fast-fashion garments are estimated to end up in landfill within a year of purchase.

Finally, boohoo faces stiff competition from other online retailers, such as ASOS. Following a move from AIM to the London Stock Exchange‘s Main Market earlier this year, ASOS is eyeing a promotion to the FTSE 250. boohoo shareholders will hope the company’s fortunes change soon as it battles to retain market share.

Should I buy now?

Investing in boohoo isn’t risk free. The company has a history of repeatedly disappointing investors. However, with the share price in pennies, the stock does look particularly cheap to me at present.

With insider backing, improving corporate governance and a new ‘Ready for the future‘ collection made from recycled materials, I think better days could be ahead. I’d add some boohoo shares to my portfolio as a higher-risk play while the share price still looks like an attractive value proposition.

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.

Charlie Carman does not own shares in any of the companies 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.

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