It’s fair to say the last few months have been a rollercoaster for Boohoo’s (LSE: BOO) share price. After rising more than 100% between April and June, the shares crashed spectacularly in early July after The Sunday Times highlighted poor working conditions at clothing factories linked to the company. And in the last week or so, the online fashion stock has been up and down like a yo-yo.
Are you tempted to buy Boohoo shares now that they’re well below their 2020 highs? Here are two things you should know.
BOO shares: insiders are confident
One thing that stands out to me about Boohoo is that last week, company insiders purchased a truckload of Boohoo shares.
On Thursday, Boohoo co-founder and executive chairman Mahmud Kamani purchased 5m BOO shares, spending £10.7m on stock, while group co-founder and executive director Carol Kane purchased 2m BOO shares, spending £4.3m on stock. Meanwhile, non-executive director Iain McDonald bought 50,000 contracts for difference (CFDs) on Boohoo shares.
Insiders sell shares for many reasons. They may wish to buy property or diversify their investment portfolio. Or, they may need to pay a tax liability. Yet they only buy shares for one reason – they expect the shares to go up.
So, I see these substantial insider transactions as a bullish signal. They suggest the co-founders of the company are confident Boohoo can overcome the challenges it’s currently facing and expect its share price to rebound.
Boohoo share price: limited upside?
However, it wasn’t all bullish news for Boohoo shares last week. On the bear case side, Credit Suisse analyst Szilvia Bor came out and said that, as a result of the problems at the clothing factories in Leicester, Boohoo would most likely need to move a decent proportion of its manufacturing base out of the UK.
Bor said this could make the company slower to respond to shoppers’ changing fashion needs (Boohoo’s turnaround speed is one of its competitive advantages) and that profits could fall by about 30% by 2022 if her predictions were right. “The robustness of the group’s response remains to be seen,” she wrote to clients.
The analyst also slashed her price target for Boohoo’s share price from 440p to 250p – a reduction of 43%. That price target is only around 4% higher than the current share price.
I’ll point out that Boohoo refuted Bor’s claims, stating it was determined to keep manufacturing in the UK. “We remain firmly committed to UK manufacturing and enforcing the highest standards of ethics, compliance and transparency for the benefit of all garment workers,” Boohoo said.
Are Boohoo shares a ‘buy’?
So, where does this leave us? Are Boohoo shares a ‘buy’ or should they be avoided? Well, my view is that at the current share price, Boohoo is a ‘buy.’ I think the growth potential here remains vast and I see the current share price weakness as a buying opportunity.
That said, there are plenty of risks here. I expect Boohoo’s share price to be volatile in the near term. So, as always, portfolio diversification is important.
Edward Sheldon owns shares in Boohoo Group. 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.