The boohoo (LSE: BOO) share price has collapsed over the last couple of years, making it by far the worst-performing stock in my portfolio. With hindsight, I should have jettisoned it long ago rather than holding out for a (big) recovery.
Then again, I still don’t think the latter is completely beyond the realms of possibility.
Reasons to be optimistic
The first reason for thinking this revolves around current trading.
Back in June, the company said it expected to return to profitable growth in the second half of its financial year. Hopefully, that will be underlined when interim results are revealed on 3 October.
Any suggestion (within the outlook statement) that adjusted earnings are likely to come in even better than predicted could see traders pile in.
A second reason for boohoo shares possibly flying is related to the first. The prospect of the cost-of-living crisis becoming less intense as inflation gradually falls and discretionary spending bounces back could be the catalyst for an (eventual) earnings surprise. That said, rising levels of unemployment could temper things.
Third, I wouldn’t be surprised if FTSE 100 firm Frasers Group — which is apparently in talks to sell Missguided to Chinese mega-cap Shein — continued building a stake in the company or made an offer for the whole lot. It currently holds just over 10% of the shares following another buying spree in August.
Exactly what the Sports Direct owner’s strategy is remains to be seen. But further consolidation in this part of the market looks likely and could attract opportunistic buyers to boohoo shares.
A favourite with shorters
Perhaps I’m overly hopeful here. Many takeover rumours remain just that. And even if one does arrive and is accepted, it might not be at a price I’m going to like. As a humble private investor, I know that my opinion on this won’t matter one jot.
It’s also hard to deny that this sector is likely to remain insanely competitive. So if boohoo doesn’t get approached by a suitor, it’s easy to imagine a scenario where it’s perpetually running to keep up with rivals with far greater financial firepower.
Ominously, the business remains the second most shorted stock on the market. Put another way, a significant minority of traders are betting its shares have further to fall. The only company more ‘hated’ is peer ASOS.
Sure, short-sellers make mistakes. And if there is an earnings surprise, many will rush to close their positions. Ironically, that stampede should provide a further boost to the stock.
But their ongoing presence isn’t exactly comforting.
Close to selling
Being a patient long-term shareholder is one thing. Staying invested in a stock whose best days are behind it is something else entirely.
Considering its recent woeful performance and uncertain future, there’s a strong argument for thinking the latter when it comes to boohoo. Throw an absence of dividends into the mix and I’m as close to throwing in the towel as I’ve ever been.
Having outlined the three reasons above for maintaining a position however, I’m prepared to keep holding for a bit longer.
C’mon boohoo — give this bruised investor a reason to smile again.
