Can the Boohoo share price really double in 2021?

The Boohoo share price is dipping after an upbeat January trading update. Here’s why I think the full year could be a lot better.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

man in shirt using computer and smiling while working in the office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »