Down 15%! Why did the THG share price crash today?

The THG share price plunged after the e-commerce firm posted its interim report. Could this be an opportunity for me to buy the stock?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close up of a group of friends enjoying a movie in the cinema

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The THG (LSE:THG) share price was falling heavily today (14 September) after the digital commerce firm reported its H1 earnings. As I write mid-morning, the shares were down 15% to 74p.

That’s still more than double last October’s share price of 32p, it should be said. But overall, we’re looking at an 88% collapse since the stock started trading on the London Stock Exchange three years ago.

Why has the firm’s interim report sparked this latest sell-off? Let’s take a look.

Headline figures

Prior to this half-year earnings release, investors were keen to see whether the company could bring costs under control to improve EBITDA profitability. And how this would affect growth in its three core divisions (Beauty, Nutrition, and Ingenuity).

Well, the answers are in and the market didn’t like what it saw.

For the six months to the end of June, group revenue fell 9.3% to £969.3m from £1.07bn the year before. Here’s how that broke down on a division level.

Revenue £538.7m£340.7m£320m
Growth year on year-10.4%+2.6%-14.9%

Meanwhile, continuing adjusted EBITDA of £50.1m improved 22.9% from £40.8m last year. And that was above the top end of guidance, which the firm had put between £47m and £50m. A margin of 5.3% was up from 4%. 

Adjusted EBITDA£10.6m£47.1m£3.4m
Growth year on year-40.4%+71.9%-50.8%

The end result of all this was a loss of £99.5m in the first half. That was wider than last year’s £89.2m. Management attributed this increase to a £26.2m one-off charge related to the disposal of its loss-making OnDemand business.

Digging deeper

There were some worrying numbers in the report, I feel. Chief among them was the slowing growth and declining profitability in its Ingenuity division. This is the e-commerce platform that helps other brands with their digital strategy and sales.

Previously, this was seen as the growth engine of the business. Now it seems to be sputtering badly.

Also, we can see that adjusted EBITDA for the Beauty segment fell 40% to £10.6m. This unit houses popular retail brands such as Lookfantastic and Cult Beauty. Now, there was a one-off de-stocking in manufacturing issue, but the firm is facing some challenges here.

Nutrition was a bright spot, as the high price of whey eased, boosting margins.

Looking forward, management said that sales trends were “gradually improving” into the second half. However, it still lowered its full-year revenue forecast, signalling a potential decline by as much as 5%.

The previous forecast was for single-digit growth, so that’s not great, and almost certainly played a big part in the sell-off.

Will I buy the stock?

I was bearish on the stock before the report due to the continuing losses, and that hasn’t changed.

Yes, the business is finally taking decisive action to improve its profitability, which is a positive. But as it pulls back on spending, growth is inevitably going to be sacrificed. Still, the slowdown in its Ingenuity unit is alarming, I feel.

My portfolio is largely made up of growth and dividend shares. However, I’m not sure whether THG is a growth stock today, and it obviously doesn’t pay dividends as it’s loss-making. Therefore, I think there are far better opportunities elsewhere right now.

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »