I added Boohoo (LSE: BOO) to my portfolio during December’s share price dip. I’ve also pondered the possibility of my investment doubling in value in 2021. The Boohoo share price is one that can react in a volatile manner to short-term events, but I want to look beyond that.
I did suggest Boohoo might get a boost from January’s trading update. That update came on the 14th, though the shares are in one of their regular short-term dips and it didn’t really help. I only care about the long term, but what did the update say?
The key highlights included revenue growth of 40%. That left the company with net cash of £386.9m at 31 December (up from £344.9m at 31 August). Gross margin slipped a little, by just 50 bps to 53%. But that’s a cracking margin to be achieving by any standards.
Looking forward, Boohoo has upped its full-year revenue growth guidance. We’re now looking at between 36% and 38%, up from previous guidance of 28% to 32%. This all looks very positive to me, but the Boohoo share price dipped by 5% on the day.
Why did the Boohoo share price slip?
Perhaps it’s something to do with the new Covid-19 lockdown? Last year, the coronavirus crisis and its effect on the high street gave online shopping a boost. Maybe investors are concerned that that effect will slow? Or the recent downturn could be just part of the volatility that shareholders have seen for years.
Anyway, let’s forget what’s driving the Boohoo share price in the short term. In the long term, I can’t see anything but steady growth. But for that, I need to think about what the market will be like once the pandemic is finally past us. Looking back to early 2020, Kantar valued the global fashion market at around $300bn. The market analyst also predicted growth of about 3.9% per year in the following five years. That would add an extra $64bn by 2025.
The economic impact of the global pandemic will surely knock that back a bit. But at the same time, it’s giving the online marketplace a handy boost. So while the overall rosy outlook from early 2020 might not quite come to pass, I reckon market share growth at Boohoo and other online sellers is still set to accelerate. And that could help the Boohoo share price to double.
A lot more growth to come?
Boohoo’s revenue for the year to February 2021 looks set to come in close to £1.7bn ($2.3bn). That’s based on the mid-point of the latest outlook figures, and that rate of growth might not be sustainable post-Covid. But the total is still a very tiny fraction of the world market, which suggests to me that Boohoo is probably still in its early growth days.
Even going back to previous guidance of around 30% growth, that still suggests Boohoo is too cheap to me. I see 30% per year as sustainable. And if that translates to profit growth, which I think it will? Well, 30% per year growth in EPS would put the Boohoo share price on a P/E of only about 15 in five years.
Can my investment in Boohoo really double in 2021? I rate it as the one in my portfolio with the best chance.
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.