Fast fashion retailer Boohoo (LSE:BOO) had a mixed year in 2020. The pandemic created disruption and a damning investigation cast a dark cloud over the popular FTSE-AIM stock. But growth in online sales was strong as Covid-19 accelerated the consumer shift to e-commerce. So, is 2021 offering a clean slate and a chance to bring further riches to loyal shareholders, or should buyers beware?
Share price volatility
Founded in 2006, the Manchester-based company defied the odds on AIM by going from a penny stock selling cheap clothing, to a fashion empire worth £4.3bn. It launched on the London Stock Exchange in 2014 at 85p a share. By the following year it had fallen to 25p and then soared until mid-2017. Since then, the Boohoo share price has been extremely volatile, but it’s never been back below £1.
Focus on M&A
Boohoo has had a clear M&A growth strategy in recent years and has made several major acquisitions. This has undoubtedly given the company serious clout in e-commerce and fast fashion.
These acquisitions include Karen Millen, PrettyLittleThing and Nasty Gal. More recently it acquired the online side of Debenhams, which brings major customer data with it. It also pivots Boohoo into the lucrative world of beauty, currently a £12bn market in the UK. The company hopes this acquisition will accelerate its ambition to be the leader in fashion and beauty ecommerce.
With plenty of cash in the bank, Boohoo is expected to continue with its acquisition spree.
While the pandemic devastated traditional high street retailers, their online counterparts see a brighter future ahead. With so many popular brands under its belt, this gives Boohoo a competitive advantage. Its young target market of 16-30 year-olds like to look good both online and off. They also tend to have a disposable income for affordable, fashionable clothes.
With this in mind, the growth trajectory for Boohoo may well resemble the past five years. But there are headwinds that can’t be ignored.
The fashion industry is one of the biggest contributors to global pollution. With a heightened focus on ESG investing and sustainability, this could lead investors to look elsewhere. It may also lead to higher costs for the company to meet regulatory changes. And if inflation rears its ugly head, then fast fashion may not be as affordable, or the priority purchase it once was.
Last summer the company became embroiled in an investigation into worker exploitation at a factory in Leicester making clothes for Boohoo’s Nasty Gal brand. It’s addressing this with plans that include higher supplier standards, offering educational training programmes for staff and suppliers, a new factory in Leicester, and moves to eliminate sub-contracting. Meanwhile, last month it announced it’s investing £50m in a fourth warehouse to increase capacity. This will create up to 1,000 jobs over time.
Boohoo doesn’t offer a dividend and I think it’s share price is quite expensive. Its price-to-earnings ratio is 62 and earnings per share are 5p.
The Boohoo share price is down 21% from its 52-week-high and up 72% from its 52-week-low. I think that perfectly illustrates the fluctuating nature of this stock. I don’t have plans to buy shares in Boohoo at this time.
Kirsteen has no position in any of the shares 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.