Can the Boohoo (LSE: BOO) share price double in 2021? Well, let’s see. The share price trebled between March and June this year. And between July and September, it almost doubled again (after crashing in between). Oh, and in 2019, the shares had doubled in value, before plummeting when the 2020 Covid-19 pandemic arrived.
So yes, suggesting Boohoo could double in 2021 seems a bit like saying it might rain in Manchester. But I’m really thinking about sustainable growth here, and whether we’ll see a 2021 outperformance that sets the scene for future years. I do hope so, as I bought some during the most recent dip.
If the past is anything to go by (and, caution, in the investing world it isn’t always), the potential must surely be there. The Boohoo share price might have been erratic, but over the past five years the rises in Boohoo’s earnings have been phenomenal.
It posted earnings per share of 1.11p for the year to February 2016. By the time that date came around in 2020, the figure was up to 6.02p per share. That’s almost a sixfold increase in just four years. And while the pandemic has knocked traditional high street retail for six, Boohoo’s online market has carried on just fine.
Further growth expected
It shows in forecasts, with analysts predicting a further 35% earnings growth in the current year, followed by almost 30% for 2021-22. That would translate to earnings multiplying more than nine-fold in only six years. And based on the current Boohoo share price, it suggests a P/E of 29 for February 2022. That’s around twice the FTSE 100‘s long-term average, so why should Boohoo shares command double the valuation of our proven top companies?
Well, if earnings growth continues at the current rate, I think that valuation will prove to be too low. After all, we’ve seen it much higher in the past. Back in February 2017, Boohoo was on a P/E of over 65. That shows how far the stock’s valuation has fallen in a bit less than four years, even against a rising share price. If earnings keep growing at the same rate but the shares don’t move, the P/E would drop to under nine by 2024-25. And even the grizzliest of bears would surely see that as crazily cheap.
A static Boohoo share price?
Clearly, I don’t think the Boohoo share price will stand still for the next four years. But what do I think could give it a boost in 2021? Firstly, I expect another good set of results would provide a quick upwards re-rating. We have a trading update coming on 14 January, which is one for the calendar. That alone could provide a share price uplift if it looks good.
And the next set of forecasts could be the trigger for another upwards move. Suppose the City follows with a similar forecast for the 2022-23 year? That would mean another EPS rise of around 30%, dropping the forward P/E to about 20. And that, I think, would be a screaming buy signal.
I reckon Boohoo is still in the early days of its international expansion. And I foresee double-digit annual earnings growth for a good few years yet. And yes, I do think there’s a realistic chance the Boohoo share price could end 2021 at twice today’s level.
Alan Oscroft owns shares of 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.