Will the Boohoo share price recover in 2021?

The Boohoo share price has underperformed over the past 12 months but, over the next few years, the company’s outlook’s bright, believes Rupert Hargreaves.

| 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.

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.

The Boohoo (LSE: BOO) share price has fallen nearly 19% over the past 12 months. Over the same period, shares in the company’s online fashion peer, Asos, have increased in value by 40%. This means shares in the former have underperformed those of the latter by 59%!

The question is, will the stock turned things around in the second half, or is the company going to continue to underperform?

The Boohoo share price outlook

It’s impossible to predict what will happen to share prices in the short and long run. However, in theory, a stock price should track a company’s underlying fundamental performance. Therefore, if Boohoo’s profits grow, the stock price should also rise, although this isn’t always the case. 

Indeed, over the past 12 months, Boohoo’s fundamentals have improved dramatically. Sales increased 41% year-on-year for the group’s financial year ended February. Meanwhile, profit before tax increased 35%, and adjusted earnings per share jumped 47% to 8.7p

Boohoo has been one of the pandemic’s big winners. Consumers have flocked to its online offer as brick-and-mortar stores have been forced to shut. Management has used some of the windfall profits to buy some struggling brands, increasing is offer further still. 

It looks as if the corporation is firing on all cylinders. But the Boohoo share price has still struggled. 

Struggling

I think there are two primary reasons why. First of all, last summer, the company was hit by evidence of labour abuses among its UK suppliers, including paying workers far below the minimum wage.

While the enterprise has tried to rectify these issues with an investigation and cutting ties with specific suppliers, it seems there’s still a cloud hanging over the business. 

Secondly, the stock looks a bit pricey. It is trading at a forward P/E ratio of around 46. This could be sustainable if the company’s growth continues, but that’s not guaranteed.

As the economy reopens, consumers may return to brick-and-mortar stores, leading to a growth slowdown at the business. This could hurt the Boohoo share price. 

Uncertainty prevails

All of the above suggests to me that the outlook for the Boohoo share price is quite uncertain. The company’s growth is impressive, but if growth slows, then the stock looks expensive. What’s more, it could take some time for the digital retailer to rebuild trust with its investors. 

That said, I’m incredibly encouraged by the group’s impressive growth, portfolio of brands, strong balance sheet and online operation. I think these qualities will help the business prevail over the next few years.

As such, while I think the outlook for the Boohoo share price remains uncertain, over the next few years I think there’s a strong chance its profits will continue to increase.

And as profits continue to increase, the company’s stock price should reflect that. On that basis, I’d buy the stock for my portfolio today as a buy-and-hold growth play. 

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »