As the THG share price climbs 6%, is it a best-buy growth stock?

Could shareholders be set to profit from a new bull run for the THG share price? Here’s a look at how this year is going so far.

| 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.

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.

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 jumped 6% in early trading on 17 October, in response to a third-quarter update.

The price is still down 88% since the stock floated in 2020. But I can’t help thinking we might be looking at a tasty second bite of the growth cake now.

What’s changed?

What are the key highlights from Q3?

Revenue figures for the whole quarter were down on the previous year, across all business categories. An overall 4.4% drop is not great.

But it sounds like we might have passed the worst now, with THG describing it as its “best quarterly revenue performance in the last year.

And the company returned to positive growth, in constant currency terms, in September.

Bad spell

THG, which provides direct-to-consumer online retail services, has suffered from a downturn in demand for beauty and nutrition products. The update spoke of “global de-stocking,” but says it’s eased now.

We’re heading into the Christmas period, so I can’t help thinking the positive momentum could keep going in the final quarter.

The firm still expects full-year revenue to be somewhere between flat, and a 5% fall on the previous year.

But could it set up THG for a better 2024? There are reasons to think it might, as the firm says capital expenditure should be less than previously thought.

Balance sheet

There’s one main risk for me with a company like this. And it’s all about lack of profit. Broker forecasts still have none on the cards in the next few years, although they do show losses falling.

That doesn’t mean a growth stock isn’t a good investment while it’s making a loss. But it does make me focus on the balance sheet.

The Q3 update is upbeat on that score. CEO Matthew Moulding said “The group is exceptionally well invested with a strong balance sheet.”

Cash is what counts

And it reported a “strong cash performance” in the quarter, with a £5m inflow in the last 12 months.

I always worry that a company at this stage might need fresh capital injections, which could dilute existing shareholders. But if cash flow stays strong, that risk should be lessened.

And at the halfway stage, THG reported £563m in cash and available facilities, which looked pretty good to me.

But my eyes will rush to the balance sheet, and to cash flow measures, when I see the full-year results. We don’t know when that will be yet, but we should hopefully see a full-year trading update in January.

My verdict?

I like the positive vibes from this latest update, and it’s good to see improving cash flow.

But next year’s fall in capital expenditure could be a bit double-edged. It could help boost profit margins here sooner. But might it also put a crimp in the firm’s growth plans? The need to save cash isn’t an ideal thing to see in an early-stage growth stock.

I think the next few quarters could swing things. But I just don’t know which way yet. I’ll keep watching.

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.

Alan Oscroft 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

Investing Articles

Here’s the latest growth and share price forecasts for Nvidia stock

Nvidia is due to report Q4 results towards the end of February. Should I buy the stock in anticipation of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Is the party over for the S&P 500 as Trump’s tariffs loom?

Donald Trump's planned tariffs have cast doubts on the future performance of the S&P 500. What should investors do now?

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett continues to invest in this well-known pizza company

Warren Buffett just bought another 1.1m shares in Domino’s Pizza. Should investors follow him into the well-known fast food company…

Read more »

Investing Articles

A £100 weekly income from a Stocks and Shares ISA? It’s possible!

Mark Hartley details how a combination of good stock picks and patience could transform a Stocks and Shares ISA into…

Read more »

Young black colleagues high-fiving each other at work
US Stock

Why Apple stock could be set to soar with the new Alibaba partnership

Jon Smith explains why a new deal relating to the Chinese market could be good news for Apple stock, not…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

This FTSE stock tanked 58% last week. But there could be some good news!

Shares in John Wood Group plunged after the FTSE engineering stock released a trading update. But our writer thinks there…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£1,000 invested in Tesla shares 2 months ago is now worth…

Tesla shares have soared over the last decade. However, since 17 December 2024, they have lost more than a quarter…

Read more »

US Stock

Could Trump’s tariffs cause a stock market crash?

Jon Smith looks at the recent whipsaw movements in the markets relating to US trade policy and talks through stock…

Read more »