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The Boohoo share price: is now the right time to buy?

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I think it’s fair to say the Boohoo (LSE: BOO) share price has been on a wild ride this year.

The stock started 2020 trading at around 300p. It then slumped to a low of about 170p in the market crash.

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Then, when it became clear the company would be one of the few businesses to benefit from the coronavirus crisis, investors rushed to buy the stock. This improving investor sentiment pushed the value of each share above 400p.

A few weeks after hitting this all-time high, the stock lost nearly 50% of its value after allegations emerged the business was supporting suppliers who underpaid their workers.

Management quickly vowed to do something about this. The company commissioned a review into its supply chain and has cut off any suppliers who fail meet its labour standards. 

These actions have improved investor sentiment towards the business. However, the stock continues to trade below its all-time high. The Boohoo share price is currently changing hands at just over 300p, around the level at which is started 2020. 

Boohoo share price undervalued?

From a fundamental perspective, I think this undervalued the business. As noted above, Boohoo is one of the few companies that has seen sales grow in the coronavirus crisis.

City analysts are forecasting a 40% increase in net income across the group this year. The company has used its size and cash generation to swoop on struggling peers.

I think this strategy is incredibly sensible. It may help the company grow even faster in the years ahead.

Many of these businesses were struggling to compete in the viciously competitive online retail market. Boohoo has been able to step in and buy their brands at firesale prices. It can then use its size and experience in the online retail market to turn the businesses around. 

This is just one of the reasons why I’m optimistic about the outlook for the Boohoo share price. As well as the company’s aggressive expansion plans, the group should benefit from the tailwind of the booming online retail market.

The company has been able to capitalise on this in the past, and I see no reason why it shouldn’t be able to continue to do so. 

The elephant in the room, however, is the company’s labour problems. Accusations of modern slavery may continue to hang over the business for some time. That said, I should point out these are only allegations at this stage. Authorities have been investigating the firm and, so far, no evidence has been found to prove the allegations. 

As such, I think that now could be an excellent time to buy into the Boohoo share price. The company’s earnings are set to roughly double over the next two years. And this growth could provide large capital returns for investors. 

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Rupert Hargreaves owns no share 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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