One of the biggest flops on the London Stock Exchange initially began as a huge success. I refer to the initial public offering (IPO) of THG (LSE: THG), which floated in 2020 at a share price of 500p.
The share price skyrockets
When the group listed on 16 September 2020, the THG share price exploded. At the IPO price, the Manchester-based e-commerce business (formerly known as The Hut Group) was valued at £4.5bn. In an impressive first-day surge, THG shares touched 658p, before closing at 625p. Handshakes and back slaps all round for a successful float!
However, the share price continued its upwards path. At its all-time high in January 2021, it peaked at almost 840p, valuing the business at £7.5bn. THG was heading for the FTSE 100 index and Matthew Moulding — its high-profile founder, executive chair and chief executive — was a paper billionaire.
SoftBank bets on THG
Founded in 2004 to sell CDs and DVDs, THG evolved into a major e-commerce group, running nearly 200 websites selling a range of products direct to consumers. Its three core divisions — health, beauty, and nutrition — sell products including cosmetics and protein shakes online. And Moulding is particularly enthused by THG Ingenuity, the firm’s proprietary e-commerce platform.
Indeed, giant Japanese tech investor SoftBank Group bought into THG in May 2021, spending $730m at a share price of 596p. This gave the company an option to buy 19.9% of THG Ingenuity for $1.6bn within 15 months. Unfortunately, this proved to be yet another bad bet for Masayoshi Son’s tech behemoth.
THG shares slide, then crash
On Friday, the THG share price closed at 60.08p, valuing the entire group at £760m. In addition, SoftBank has dumped its entire stake in THG at a £450m loss. Oops.
Thanks to slowing sales growth and shrinking margins, THG is a shadow of its former self. However, its share price has rebounded sharply in recent weeks, as this table shows:
| One day | 6.8% |
| Five days | 2.9% |
| One month | 58.6% |
| Six months | -44.9% |
| 2022 YTD | -73.0% |
| One year | -69.1% |
| Since listing | -86.6% |
Over any reasonable length of time, THG shares have been an unmitigated disaster. Last month, they hit a lifetime low of 31.15p on 11 October. But the THG share price has since almost doubled, zooming up 92.9% from rock bottom.
Would I buy the stock today?
THG continues to be a major player in sectors such as beauty retail, and its Ingenuity offer is winning custom, so its long-term future could be bright. And after falling so far and so hard, perhaps there’s some value hidden away in the THG share price? Frankly, if there is, I struggle to see it. The business is currently loss-making — and the UK economy is clearly heading for a recession. Indeed, soaring inflation, sky-high energy and fuel bills, and rising interest rates may combine to crush consumer spending in 2022-23.
Without any core fundamentals with which to value THG, I honestly have no idea whether its share price is a bargain today — or where it’s going next. Also, as a value investor, I prefer to buy for the long term, rather than taking short-term punts on recovery stocks. Hence, I won’t buy shares in THG for now, simply because I’m an old investor and not a bold one!
