Is boohoo about to surge like the Rolls-Royce share price?

The Rolls-Royce share price performance has been phenomenal, but can boohoo group stage a strong turnaround soon too?

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Despite rising more than 650% over two years, I reckon the Rolls-Royce (LSE: RR) share price may go higher still over time.

Created with Highcharts 11.4.3Rolls-Royce Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The business has a skill-base and engineering prowess built over decades. In that sense, it has a technical and economic advantage in the markets it targets.

An exciting new business line

On top of its strongly-performing divisions in civil aerospace, defence and power systems, the company’s making strides entering the new market of Small Modular Reactors (SMRs).

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In August’s half-year results report, the company said it has completed step-two of the Generic Design Assessment (GDA) regulatory process in the UK. The firm began the third and final step on 30 July.

Rolls-Royce is the only European company to have reached the milestone, and that builds on the firm’s competitive advantage.

First power from SMRs will likely occur in the early 2030s, and depends on the business winning orders from the UK government. On top of that, the company’s one of two shortlisted by Swedish state-owned multinational power company Vattenfall to provide SMRs in the country.

Rolls-Royce said Vattenfall plans to target the rising demand for electricity by adding nuclear capacity to achieve Sweden’s goal of a fossil-free economy by 2045.

SMRs supplied by Rolls-Royce have the potential to be an important contributor to the energy mix as governments strive for greener and more secure energy solutions. The developing new line of business may also help to power the company and the share price over the coming years.

Looking for turnaround potential

However, Rolls-Royce isn’t without its risks. We saw in the pandemic that it has vulnerabilities. But even before coronavirus, the business had been struggling with declining earnings. It appears to be a well-managed now, but may not always be in the future.

Meanwhile, it’s tempting to look at other firms that have hit hard times in the hope they can stage a dramatic turnaround like Rolls-Royce has. One to consider is fast-fashion online retailer boohoo (LSE: BOO).

It was a tearing growth operation for several years with a share-price chart to match. However, the stock started plummeting in 2021 and profits had turned to losses by 2022.

Created with Highcharts 11.4.3Boohoo Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What was once a healthy pile of cash on the balance sheet is now a bucket of debt worth about £217m. Boohoo, it seems, has gone from hero to zero in the world of UK stocks.

There’s been a long list of challenges for the business, which have been well reported. But I reckon the biggest now is the way Chinese competition’s eating into the firm’s market share. On top of that, resurgent traditional clothing retailers are also taking a slice, such as Next.

Can boohoo turn itself around? Maybe — at least a bit. City analysts predict narrowing losses ahead, and the company’s still trying to develop operations in the US, which is a strategy that may come good in the end.

Nevertheless, boohoo’s just a retailer. Other than its brands, it lacks the huge technical competitive advantages that Rolls-Royce possesses, or anything similar.

So despite the risk of being wrong about boohoo’s potential, I’ve decided to avoid the shares.

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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 recommended Rolls-Royce Plc. 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.

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