Down over 15% this year, but is boohoo a buy at today’s share price?

Should I buy boohoo now while the share price is low and aim to sell high later if the business recovers and earnings grow?

| More on:
Young Black man sat in front of laptop while wearing headphones

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 boohoo (LSE: BOO) share price has crashed from just above 400p in 2020 to around 33.45p as I write (1 May).

But now there’s the possibility of a turnaround in the business. If that happens, we could see the share price explode higher from its current depressed position.

From hero to zero

What happened to the online fashion clothing retailer? In a word – earnings!

To be specific, the lack of them.

boohoo has gone from posting earnings per share of 7.24p in the trading year to February 2021, to zero.

In fact, it’s worse than that. Analysts expect the company to post a loss per share of over 6p for the 12 months that ended in February this year. Investors can sift through the carnage with the full-year results report due on 8 May.

Performance has been terrible and the company has faced many challenges.

Looking for signs of improvement

However, with the earnings report coming later this month, it’s a good time to focus on the stock. Sometimes in such situations, it’s possible to find a few nuggets among the rubbish that can tip off investors about better trading ahead. But that’s not always the case when businesses get into trouble.

Last October with the half-year results report, chief executive John Lyttle sounded a note of optimism. The company had made “substantial” progress with key projects and initiatives. One of those was the launch of a US distribution centre.

There had been “significant” improvements in lead times for sourcing goods. Meanwhile, the firm had cut some of its selling prices to “reinforce” its value credentials.

However, the interim figures were dire. Revenue and earnings declined year on year, and net debt rose.

But he said the company had identified more than £125m of ongoing annualised cost savings.  The directors had “confidence” in the medium-term prospects for the Boohoo business and saw a “clear path” to improved profitability and a return to growth.

At the last count, there was around £162m of net debt on the balance sheet. That’s not the strongest position for a loss-making business to be in – I’d prefer to see net cash.

A big shareholder has arrived

Nevertheless, Frasers Group has built a position in the bombed-out stock and now holds around 22% of the shares. The organisation has a history of buying struggling retailers, starting when it was called Sport Direct under the management of Mike Ashley.

However, not all the acquisitions under Ashley’s watch have been successful turnarounds. So Frasers’ presence on the boohoo share register has limited value as a positive indicator.

I think boohoo still looks risky now, but with the potential to be a decent turnaround play. It could even rebuild and become a growth business again.

However, the upcoming results are important. I’ll be watching like a hawk and reading the report for further clues that the turnaround strategy has started working.

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.

Kevin Godbold 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

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

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

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »