The boohoo (LSE: BOO) share price got off to a good start in September, up 20% in just a couple of days.
It’s dropped back since, though. And it’s down a painful 80% in five years. But that’s not the worst. Anyone unlucky enough to have bought in June 2020 could be down more than 90% now.
But I think things might be about to change.
Enter Mike Ashley
Frasers Group has built up a stake in boohoo over the past few months. Its most recent purchase, on 1 September, took its holding up to 10.4%.
Mike Ashley, the sometimes controversial largest shareholder of Frasers Group, can be bullish when he sees something he wants.
Back in June, Frasers said: “boohoo is an attractive proposition to us with its laser focus on young female consumers. We see potential synergies and an opportunity to strengthen our own brand proposition in collaboration with boohoo, most obviously with Frasers Group brands I Saw It First and Missguided.”
ASOS too
The chain has also been hoovering up shares in online rival ASOS. And, as of this month, it has around a 20% interest in the stock.
So, if Mike Ashley thinks the boohoo and ASOS share prices are low enough to buy at, shouldn’t we too? And doesn’t it surely signal a better future for shareholders?
Well, maybe.
We need to be cautious over corporate takeovers, and building up stakes in rivals like this. The motivation can be very different than for private investors.
It didn’t stick
I do think Frasers’ interest is a good sign. I just don’t think it would buy at current prices if it thought the stock was too overvalued.
So, at the least, I suspect this could mean there’s less risk of further boohoo share price falls. But, for now, it might not mean much more than that.
After all, the share price jump on the day of Frasers’ last buy didn’t stick.
Just a few days later, it was back scraping barrels again. So the big investors don’t seem impressed by Ashley’s interest so far.
Valuation
For those of us not looking for new outlets to sell our existing brands, it has to come down to underlying performance. And that’s where I think boohoo still looks so uncertain.
Full-year results released in May boasted “significant market share gains over the last three years, with sales +43%, and the UK +61%.“
But revenue actually fell 11% in the past 12 months. And the year brought a loss before tax.
And even if sales did grow over three years, net cash declined from £241m in 2020, to just £5.9m by February 2023.
Recovery
Forecasts suggest a big cash outflow for the 2023-24 year too, and don’t show positive earnings before 2026.
I do think we could be close to the turning point here. But my aims are not the same as Mike Ashley’s, and I must take care not to be swayed by him.
But maybe I’m just too cautious after being burned by boohoo shares before.
