I think the boohoo (LSE: BOO) share price drop-off is one of the most fascinating stock market stories in recent years.
Is there light at the end of what’s been a long, dark tunnel? Let’s take a look at past events, as well as the future prospects and risks boohoo faces.
boohoo indeed
Let me take you back to the height of the pandemic, the summer of 2020. boohoo shares were flying high at 413p. Right now, I can buy the shares for a paltry 28p. That’s a 93% drop! Over the past 12 months, the shares are down 20% from 35p to current levels.
Let’s go back to 2020 again, and boohoo is embroiled in a scandal about poor labour practices in its supply chain. Since then, the threat of a US import ban has plagued the business. boohoo did attempt to remedy the situation by opening a new manufacturing hub but its reputation and investment viability was in tatters.
Things have gone from bad to worse. A tougher trading environment, poor performance, and the rise of cheaper, more efficient competitors have hampered the business.
Frasers Group, headed up by Mike Ashley, now owns 10.3% of the company. The share price rallied, albeit minimally, when the news broke. Could an eventual takeover be on the cards? Time will tell, but that could send the share price upwards.
What’s next?
Earlier this month, boohoo released a disappointing half-year trading update for the period ended 31 August 2023. Revenue fell by 17% to £729m, compared to the same period last year. Sales plummeted across all its brands. More tellingly for me, UK revenue slumped by 19%. That’s a damning indictment, since it considers the UK as its core market. The business posted a pre-tax loss of £9.1m. The balance sheet doesn’t look in great shape right now.
I can’t ignore boohoo’s position in a very competitive market. It finds itself being out-priced and outmaneuvered by its competitors, in my opinion. These competitors include Chinese giants Shein and Temu. Products are made in China, which means their costs are a lot lower. It seems their reach and popularity is only increasing too. The signs aren’t looking good, especially when you consider Shein, the bigger of the two I’ve mentioned, is sitting on a market-cap of over $66bn and may go public at some point, which could provide it with even more cash!
Final thoughts
boohoo is attempting to rectify its situation, such as identifying £125m in cost savings. However, it will need to do much more than that to push up the share price over the longer term.
Right now, I’m not sure the share price could ever reach such heights of 2020 again. There’s just too much going against it if you ask me. Competition, as well as past scandals, and current issues, including rising inflation and interest rates could impact it. I believe that the shares could continue to slide further from current levels rather than head upwards.
At this point but I wouldn’t touch boohoo shares with a barge pole. I’ll be keeping a close eye on developments to see the next chapter of this remarkable story.
