In the depths of the stock market crash, shares in Boohoo (LSE:BOO) plunged by a whopping 51%. Since then though, the share price has rocketed by around 166% to reach a new all-time high.
Known for its affordable fashion, the firm’s popularity has surged over the years. According to a YouGov poll conducted in May, 11% of 18 to 24 year-olds made a purchase from the company in the last three months! With that in mind, could the FTSE AIM 100-listed company be among best UK shares to buy now?
The online fashion retailer owns numerous popular brands such as PrettyLittleThing, Coast and Karen Millen, as well as its original signature label. On top of this, the group has just added another two to its portfolio. On Wednesday, Boohoo said it had acquired the online businesses and intellectual property of Oasis and Warehouse for £5.25m. Acquisitions have proved to be a key driver of growth for the company and I expect this trend to continue over the long term.
Strong sales growth, revenue and numerous acquisitions over recent years have sent the Boohoo share price rampaging upwards. To illustrate this, those who bought the shares at the beginning of 2016 would have realised a 1,057% return on their initial investment.
Moreover, yesterday the online fashion retailer released an impressive trading update covering the three months to 31 May 2020. The report outlined a bumper performance, with sales rising by 45% compared to the same period last year. As a result, the shares rose by 8% in early trading.
All in all, nobody can fault Boohoo’s exceptional performance over the last few years. But can the company continue to grow at a similar rate in the months and years to come?
Boohoo’s future outlook
For the current financial year ending February 2021, Boohoo has said it expects to deliver “another year of strong profitable growth, and ahead of market expectations”. However, the group’s share price valuation is still a concern of mine. The shares, which trade on a forward P/E of around 64, could certainly be classified as overvalued. What’s more, in order to be justified, Boohoo has no choice but to continue delivering exceptional sales growth.
This is by no means impossible for the group. In fact, more acquisition opportunities could be imminent due to the pressure certain retailers are under from the coronavirus. The company has a bulky pile of cash that could easily be used to finance any future acquisitions without doing significant damage to the balance sheet. For this reason, I expect the spending spree on cheap, distressed-but-improvable brands to continue. Consequently, I wouldn’t be surprised if the Boohoo share price continues to make impressive gains as the firm’s growth goes on.
Overall, Boohoo’s stellar performance in the midst of a global pandemic is commendable. What’s more, there are certainly opportunities in the not too distant future that could fuel further growth. As such Boohoo shares could truly be among the best to buy today. Especially for those who are bullish about the long-term prospects of the underlying business.
Alternatively, those who are put off by the group’s steep valuation and remain sceptical over the company’s capacity to continue growing may prefer to look elsewhere for the best UK shares on the market today.
Matthew Dumigan 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.