Being an investor in some of the UK’s largest retail companies hasn’t been easy for the last few years. Issues surrounding Brexit, the pandemic, and economic uncertainty have sent many of the biggest names on the high street tumbling. But I’ve had my eye on one in particular over the last few months, boohoo Group (LSE:BOO). So what’s going on with the boohoo share price?
An ugly few years
Investors in boohoo have had a horrible time in the last few years, with the share price declining by 86% since 2018. Difficulty and uncertainty during the pandemic was felt in many sectors, but alongside this, supply chains for the retail sector have been chaotic in the post-Brexit years, and the overall cost of goods has soared. With the core of the business based around offering low-cost fashion, this has been a recipe for disaster.
Revenue has declined by 18%, and active customer numbers have fallen by 12%. The rising cost of living has clearly has an impact on consumers globally, but with the company spending heavily on additional warehouses and inventory, alongside growing debts, a change in strategy is needed, and quickly.
How are the financials?
Clearly most retail companies in the low-cost fashion sector have struggled lately, with competitor ASOS also struggling in the market. As a result, boohoo has a price-to-sales (P/S) ratio in line with the sector average of 0.2 times. A discounted cash flow (DCF) calculation suggests the company is 22% undervalued at the current share price of £0.30, but this reflects the nervous and uncertain sentiment of investors.
Despite the uncertain outlook, analysts expect the company to increase earnings by 75% over the next year, far ahead of the industry average of 18%. However, boohoo is not expected to be profitable for the next three years. This will likely concern investors, as the high interest rate environment is not likely to improve the situation around the company’s debts, or increase customer activity.
A glimmer of hope?
With a well known company clearly in some trouble, there is always the prospect of further investment. Mike Ashley, the well known majority shareholder in Frasers Group has gradually purchased 15.1% of boohoo shares through his MASH holdings, suggesting that there might still be potential in the company. However, it always pays to be careful with such deals, where buying inventory and acquiring a brand can be the reason behind a purchase, rather than believing in the company itself.
Am I buying?
With no dividend, and declining financials, boohoo shares look to me to have too many red flags for investors to consider buying at present. Investors willing to go through a few more years of uncertainty in the share price may be rewarded, but I believe there are far better places for me to put my money to work. I’ll be staying clear of boohoo shares for now.
