I’ve been buying Boohoo shares for my ISA by the bucketload since they fell spectacularly back in July. Today, I’ll explain why I’ve been adding again in December.
Boohoo shares: primed to recover
First, it seems clear to me Boohoo is doing everything it can to address the concerns raised regarding its supply chain earlier in the year. The appointment of a big-hitter like Sir Brian Levenson to chair an independent review speaks volumes. Both in how seriously they’re taking allegations, but also in how much they’re prepared to invest in getting things right.
Another reason I’ve continued buying Boohoo shares is that I suspect 2021 will see the company embark on another canny acquisition spree. Although pure speculation at this point, I wonder if battered brands such as Ted Baker, New Look and Topshop might be on its shopping list. It’s certainly got the financial firepower to make some opportunistic bids.
Third, the business is still performing extremely well. Unlike other retailers, selling fast fashion has never been an issue for Boohoo, even during lockdowns and recessions.
Although nothing can be guaranteed, I’d be surprised if trading was worse than expected when we get the next update in January. Let’s not forget the AIM star raised guidance on revenue growth to somewhere between 28% and 32% back in September. It’s previously predicted a 25% increase.
Finally, there’s the valuation. A forecast P/E of 36 will make value investors dizzy, but this must be seen in context. Boohoo is rapidly building a presence in the US and other markets. It’s also as savvy as they come with social media and has no physical stores to maintain.
Add all this together and it’s a recipe for a solid recovery (and then some), in my view.
Stuck in gear… for now
Like Boohoo, shares in automotive tester AB Dynamics (LSE: ABDP) have been out of sorts in 2020, albeit for completely different reasons. I’ve been adding to my position here too.
Similar to many other companies, trading at AB has been impacted by the coronavirus. Despite revenue rising 6% to £61.5m, last month’s full-year results spoke of reduced driving robot sales, a suspension of testing operations, and deferments of orders. Trading looks to be improving, but there’s clearly some way to go.
As a Foolish investor however, I’m not all that interested in numbers from the next 6- or 12-month period. I’m looking at the long term. I’m asking will the share price be higher in five or 10 years?
I think it will be in both periods. Sure, visibility on trading isn’t great right now. But the inevitable rise of electric cars and automotive technology should be a massive tailwind for the UK business. It’s already reported “strong geographic growth” in Japan and the USA. It also continues to launch new products into its market.
Moreover, I think AB has the financial discipline to get where it wants to go. It had £31.2m in cash at the end of August, despite continuing to invest in systems and infrastructure. In a further sign of confidence, dividends were reinstated last month. What a contrast to other stocks on the market!
AB won’t rebound overnight, but I’m optimistic buying now will mean I’m richly rewarded in time.
Paul Summers owns shares of AB Dynamics and boohoo group. The Motley Fool UK has recommended AB Dynamics and 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.