Back in March 2014, when Boohoo Group (LSE: BOO) made its stock market debut, you could have bought in for around 50p a share, or a little over 20p if you had waited until early 2015. Now you need to part with about 270p.
Boohoo reported annual sales of nearly £140m in 2015. In 2019, it announced yearly revenues of over £850m, doubling 2015’s efforts three times over. So far then, this is a story of overwhelming success for both the company and its investors. Is it too late to join in now? Could the share price double again?
Growth is still in stock
I wrote about how Boohoo keeps itself fashionable back in September. Since then interim results for the six months that ended in August 2019 have been released; group-wide half-year revenues and profits have grown by 43% and 82% respectively compared to the previous period.
Despite these impressive results and reported expectations of full-year 2020 revenues comfortably surpassing a billion pounds – a major milestone – the share price is stuck in a range of 260p–280p. I, however, do not believe this means the party is over.
Revenues are forecast to grow by at least 25% per year in the medium term and that’s on a base of more than £1b. Despite investing to attract new customers – an extra couple of million social media followers have been gained since I last checked – and keeping existing ones interested, Boohoo is still delivering operating margins that are as good or better than many more-established players and return on equity is holding above 20%.
However, expectations are everything for a growth stock like Boohoo and upping sales by a quarter every year is not enough for some investors. So, we are seeing shares start to trade at lower multiples of sales and earnings, which means the price will grind, rather than leap higher as bigger revenues and higher profits are reported.
Based on what management has been saying, how the brand is growing and assuming margins do not slide substantially (which they have not, even during huge growth periods), I think this stock can cross the 300p threshold.
I have read elsewhere that some analysts think it’s worth more than that. As for doubling your money with Boohoo, I think that’s plausible, but it’s not going to happen overnight.
Sales in the UK are still at least double what they are for the rest of the world. European and US sales growth is still over 60% year over year and these are much bigger markets capable of sustaining higher growth for longer. Boohoo is signing up more internationally well-known faces to promote its global growth and has been very good at quickly getting on-trend products out to customers, which will serve it well as it caters increasingly to international tastes.
The BoohooMAN brand is seeing vigorous growth, and the recent acquisitions of Coast and Karen Millen provide, in my opinion, a more mature offering for customers who may be moving out of Boohoo’s core demographic.
Fashion can be fickle. But Boohoo has been keeping up with it since 2006, has room to grow at home and abroad, and should be hanging onto customers for longer. You may not see your money double, but I would bet you get back more than you paid.
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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. 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.