Could investing in a Shein IPO make my ISA shine?

With chatter that London might yet see a Shein IPO, our writer shares his view on some possible pros and cons of investing in the fast fashion retailer.

Young black woman walking in Central London for shopping

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.

There has been a lot of talk lately about the prospect of a Shein IPO on the London stock market.

Shein is a massive online fast fashion specialist known for its low prices. An IPO, or initial public offering, is when a company floats on the stock market and private investors like me can potentially buy its shares.

For now, there has been no confirmation that the Shein IPO will go ahead in London. If it does, though, here is what I will be looking at when considering whether to add Shein shares to my ISA shopping basket.

Rise and Shein

In recent years the Singapore-headquartered company has been on a global expansion drive. It sells to online buyers in the UK, US, and many other markets worldwide.

As well as selling directly, the company also has a marketplace in some regions that opens up its sales channels to third-party sellers. This is similar to how Amazon developed, offering both its own direct sales and a marketplace to third-party vendors.

The company is led by chief executive Chris Xu, who founded it in 2008.

Low-cost model

Fast fashion has been big business in the past couple of decades.

Shein basically jumped on that bandwagon, but added some twists of its own. Even by the standards of fast fashion, its pricing is very cheap and that partly reflects its use of low-cost manufacturing sites in China.

It is able to turn around small batches of items very fast and produces in bulk only if a product line does well.

That means it can stay up to date with fast-changing trends and avoids the expense of warehouses full of unsold clothes.

Big but crowded market

So far that has helped Shein grow at speed.

For now its company accounts are not public, but press reports have suggested that its annual revenues are already in the tens of billions of dollars.

It has cut swathes through its market, increasing pressure on competitors. As a boohoo shareholder myself, “boohoo!” is indeed my reaction to that company’s poor recent performance. That seems partly at least to reflect the intense price competition among fast fashion retailers including Shein.

Shein has build market share quickly. But it continues to face a host of rivals including boohoo, ASOS, and Zara.

Risks and rewards

Shein’s last funding round reportedly gave it a $100bn valuation. With a large customer base, operational expertise, and strong price offering, I think the company could continue to grow sales at speed.

In a crowded market, though, a risk I see is that Shein may lack a sustainable competitive advantage over its rivals. For now it is synonymous with rock-bottom pricing. But fast fashion can be a business with low profit margins at the best of times. Competing on price may make those margins thinner still.

It remains to be seen whether the Shein IPO happens in London and at what price. If I was interested in investing, I would first want to review the company accounts in a flotation prospectus to make my own judgement about the value offered by the IPO share price.

However, Shein’s relatively undifferentiated place in a very competitive market makes me think it probably is not the sort of company in which I would choose to invest.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has positions in Boohoo Group Plc. The Motley Fool UK has recommended Amazon. 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

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Nvidia stock is becoming more affordable!

Nvidia stock is up 2,500% over five years, but the chip giant’s share split -- announced during its earnings report…

Read more »

Investing Articles

Are Rolls-Royce shares good for passive income?

Our writer is getting mixed messages about the Rolls-Royce dividend. But whatever happens, he thinks passive income hunters will be…

Read more »

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »