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Does opportunity knock for Boohoo?

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I am pretty bearish on clothes stores right now. As I have said many times, people don’t buy new clothes to sit around the house. There may, however, be some exceptions. Indeed Boohoo (LSE: BOO) seems to be using this as an opportunity.

At the end of February, Boohoo had net cash of about £241m. Last week, finance director Neil Catto hinted at the company’s intention to put at least some of it to use.

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A bargain is a bargain

Boohoo has a history of buying up distressed brands and integrating them into its own business. Last year, for example, the company bought the Coast and Karen Miller brands out of administration.

As I started by saying, I suspect many clothes stores will not survive lockdown. Earlier this month, both Oasis and Urban Warehouse went into administration. Likewise Laura Ashley and Cath Kidston. A savvy company such as Boohoo may be well placed to buy up such brands.

Financially, Boohoo certainly does seem to be in a good position. The company said that sales are still rising, though not at the 44% levels it saw last year. Indeed, Catto said “Some of the analysts are thinking about double-digit growth in sales over the year, which is definitely achievable”.

As any good investor knows, buying shares while they are at their lowest is the best time. As most of the fashion industry looks set to take a hit because of lockdown, Boohoo may be able to buy up the scraps.

Why is Boohoo the exception?

Of course the interesting question is what makes Boohoo different. In essence, it is the age and fashion consciousness of its average customer. Similarly to ASOS, the majority of its customers are young and trendy.

Though they may not be going out at the moment, they are certainly looking forward to the time when they can. Currently saving money elsewhere because of lockdown, many seem to be stocking up on clothes for when restrictions are finally lifted.

Interestingly, according to Boohoo co-founder Carol Kane, its customers do also buck the trend for not buying clothes to sit around the house in. She said Boohoo ha3 noticed a significant shift away from party outfits towards more casual clothes. Online conferences, it seems, are enough to make some people still dress well.

Investing in Boohoo

As a potential investment, I think Boohoo has a lot going for it. My main concern is that it is priced quite high. However for me, any company that can buck the trend of its entire industry when things are bad is well worth looking at.

Boohoo, of course, will not be immune to the coronavirus and lockdown problems. However if it makes the most of its strong position, I for one think its shares still have way more upside left in them.

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Karl 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.

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