Penny stock Woodbois (LSE: WBI) hit a new 52-week price low of 2.6p on 26 October 2022. In the year to date, the stock has lost 37% of its value and currently trades at around 2.8p per share. It’s always tempting to look at low prices and compare them to past values. For example, Investors were willing to pay 9.4p for Woodbois shares on 5 May 2022.

I could look back further. At one point in May 2017, Woodbois shares were worth 22p. Looking even further back to February 2011, Woodbois was still a penny stock but traded closer to a pound one than at any other time in its history at 53p per share. Could it get there again?

AIM-listed penny stock

Woodbois is still an AIM-listed penny stock, but it is a very different company now than it was back in 2017, let alone 2011. Woodbois was formally known as Obtala when it was a diversified African resources company. In 2011, it held exploration licenses for diamonds, iron ore, and tin in Sierra Leone and Tanzania. These activities appear to have captured investors’ minds over a decade ago. Its forest concessions probably did not get as much attention.

In 2017, the company had assets in Tanzania, Gabon, and Mozambique. But the diamonds had gone. The company was involved in agriculture, food processing, and forestry. By 2019, the company was entirely focused on wood after disposing of a fruits and vegetable business in Tanzania. It changed its name to Woodbois in March of that year.

Woodbois had $66m in net assets in 2011. Today it reports closer to $260m, yet its share price today is a fraction of what it was back then. How can that be? Well, I imagine that the possibility of striking a rich vein of diamonds or tin can inflate a stock’s price well beyond its identifiable asset base much more than owning a lot of forestry concessions can.

Carbon offsets

I think Woodbois is a better business now than it was back then. It owns 485,373 hectares of forest concessions across Gabon and Mozambique. Trees are harvested from these concessions and processed into lumber and veneer products for sale through its trading arm. Woodbois has been steadily increasing its revenues from these operations over the last five years and is getting closer to reporting a profit without the assistance of substantial non-cash gains.

I certainly don’t think it is the type of business that can support a quick run-up in price to 2011 levels. There was a lot of expectation baked into that 2011 number. It has a new business line that could see it get involved in the market for carbon offsets and afforestation projects. There are viability and regulatory hoops for this carbon solutions business to get through, but it could get the share price moving again if it does. The company’s existing operations could also grind its share price higher if they continue the way they have been going.

But ultimately, I don’t own Woodbois in my Stocks and Shares ISA and I don’t think now is a good time to add this speculative penny stock. But I am keeping a close eye on the company to see if it can change my mind.

The post Is it a good time to buy penny stock Woodbois? appeared first on The Motley Fool UK.

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James McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Picked well, penny stocks have the potential to dramatically improve my wealth in a short period of time. This is especially true if I hold them in a Stocks and Shares ISA. Doing so means I won’t need to pay tax on any profits I make. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Today, I’m returning to look at a company that’s been on my watchlist ever since it was listed in June 2021. Should I finally dip my toe in the water?

Penny stock disaster

Based on recent performance, it’s just as well I’ve held back from pulling the trigger on bathroom specialist Victorian Plumbing (LSE: VIC). From jumping to a 52-week high of almost 342p early on, the share price has since collapsed 75% to 85p. What on earth’s happened here?

I don’t think there’s one single factor to blame. As I remarked at the time, it’s clear that Victorian Plumbing’s IPO was opportunistic and designed to coincide with the boom in DIY seen since the beginning of the pandemic. This allowed original investors to make an absolute killing. And I can’t really blame them for wanting to achieve the best price possible for their stakes. 

The issue with being the largest IPO ever on the junior AIM market is that new investor expectations jumped ahead of reality. Since those heady days, Victorian Plumbing has experienced issues with its supply chain (like many other businesses). Revenue growth has also slowed as the rush to buy new bathroom suites replaced with spending on other things.

Buy the (big) dip?

On the one hand, I’m now able to buy stock in a cash-generative company for 17 times earnings, based on analyst forecasts. That’s not screamingly cheap but nor is it is eye-poppingly expensive. Interestingly, VIC also has a PEG (price/earnings-to-growth) ratio of just 0.5. Anything less than one suggests new buyers are getting a lot of bang for their bucks. 

I’m also attracted to Victorian’s online-only/capital-light business model. It’s already profitable (in contrast to a lot of highly-valued fluff out there) and there’s a decent amount of cash on the books.

Furthermore, the company has a sizeable share of the market and customer reviews are generally very positive. To round things off, CEO/founder Mark Radcliffe retains a huge 47% stake. If anyone wants the company to bounce back, it’s him. 

But let not get ahead of ourselves. An obvious risk with this penny stock is that things could get worse before they get better. A military conflict in Eastern Europe has the potential to hit growth stocks like this, even if it’s irrelevant to selling bathrooms. Margins look like being squeezed for the foreseeable future too.

Victorian Plumbing also has a small free float. Just 35% of the company’s stock is available to trade in the market. That could exacerbate an already bad situation. It only takes a small amount of selling to really move the needle. On a more optimistic note, the reverse is also true. 

My verdict

I do feel like the (prolonged) sell-off of this penny stock has been overdone. Nevertheless, I’m inclined to wait until after this month’s AGM (and a potential update on trading) before deciding whether now is the time to strike.

For now, this penny stock stays on my ISA watchlist.

The post 1 penny stock I’m considering for my Stocks and Shares ISA appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The Boohoo (LSE: BOO) share price fell an astonishing 66% in 2021. Today, I’ll take a closer look at what happened and why the market has seemingly fallen out of love with the fast-fashion giant.

It all started so well

Holders of this stock must have been being optimistic as they entered 2021. At the beginning of last year, the Boohoo share price was riding high at 340p.

An encouraging trading statement in January went some way to justifying this momentum. Strong growth across all its brands and geographies in the last third of 2020 was reported. Accordingly, the company raised its guidance on full-year revenue. News later in the month that Boohoo had snapped up a number of brands, including Debenhams, was also positively received.

In March (and facing a potential US import ban), Boohoo was once again forced to defend its supplier practices. The AIM-listed firm published a list of 78 approved manufacturers as part of its ‘Agenda for Change’ programme. After a slight dip, the share price duly recovered, helped by news of a new warehouse that would boost sales capacity to above £4bn.

The Boohoo share price starts to tumble

It’s at this point that cracks began to appear. Helped by the rise in online shopping over the pandemic, full-year results in early May showed a 41% jump in revenue to £1.75bn. A 37% rise in core earnings to £173.6m was also reported.

Away from the headline numbers however, Boohoo said the the benefits of reduced returns seen over the pandemic would now lessen, but higher costs were here to stay. The company’s decision to maintain guidance in June’s trading update (despite sales rising 32% in Q1) also pointed to management becoming increasingly cautious on the firm’s near-term outlook. 

As the months passed, a significant minority of investors appeared to be growing frustrated with the company’s founders. No less than 12% of shareholders opposed the re-election of Carol Kane to the board. A statement that the online fashion retailer would be investing £500m in the UK over the next five years did little to appease owners.

The worst was yet to come. In September, the Boohoo share price fell sharply as it warned that previously-highlighted higher costs in its supply chain and higher wages for its workers would impact margins. This was followed by a lowering of full-year guidance in December’s (unexpected) trading statement. As expected, more clothes were being returned by customers. A serious slowdown in sales abroad, issues with deliveries, and ongoing cost inflation were also blamed. Omicron wasn’t helping matters.

Boohoo briefly became a penny stock when, in mid-December, the shares dipped to 97p. They had not been this low since September 2016. Perhaps the only crumb of comfort to holders was that industry peer ASOS was also ending the year firmly out of favour.

More news soon?

As things stand, analysts believe earnings per share will fall by 23% in the current financial year. This would leave Boohoo’s stock on a P/E of 20. Whether that proves to be a bargain for long-term investors remains to be seen. 

Based on past form, the £1.5bn-cap may provide the market with another update on trading later this month. Should this be the case, The Motley Fool UK team will be on hand to update readers.

The post Why the Boohoo share price fell 66% in 2021 appeared first on The Motley Fool UK.

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Paul Summers owns shares in boohoo group. 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.

The Boohoo (LSE: BOO) share price has had an awful 2021. Following today’s trading update, it just got even worse. Now down 66% year-to-date, it’s hard to come across many people with a good thing to say about the former market darling. In fact, something’s come to my attention that suggests things might get even worse before they get better. 

Boohoo share price: attack of the shorters!

According to shortracker.co.uk, the number of short-sellers targeting Boohoo has increased significantly.

Short-selling (betting a share price will fall) is a risky business. While the gains from betting long on a stock are technically infinite, there’s always a limit to the extent these traders can profit. In other words, a share price can’t go below zero. This makes it important for any shorter to be extremely confident in their view that Boohoo will continue to struggle.  

At this point, it’s worth highlighting that the fast-fashion giant is far from being the most shorted stock on the UK market. That dubious accolade (justifiably) goes to heavily-indebted Cineworld. However, Boohoo is now 13th on the leaderboard, not far below battered FTSE 100 member International Consolidated Airlines.

Buy, sell, or hold?

As a shareholder, it goes without saying I haven’t enjoyed Boohoo’s recent form. The emergence of a significant minority of short-sellers is another headache. Having said this, I’m not intending to sell for a few reasons. 

First, Boohoo has survived such selling pressure before. Back in May 2020, hedge fund ShadowFall claimed the company was overstating its profits and cashflow. These allegations were quickly refuted and shareholders regained their composure.

Second, many online retailers are struggling right now. Industry rival, for example, ASOS continues to suffer. Lockdown beneficiary AO World has fared even worse. So it’s simply not the case that everyone else is getting richer while Boohoo’s owners suffer.

Third, if sentiment is already low, it takes just a bit of better-than-expected news to generate a ‘short squeeze’ where those betting against a company rush to close their positions. This can often put a rocket under a share price.

Lastly, I’ve made a point of being sufficiently diversified elsewhere not to make selling my holding at (possibly) the worst time even necessary. Successfully mitigating risk in tis way is key to staying in the investment game and applies to all my holdings.

No guarantees

Perhaps I’m just biased. There’s no rule to say the Boohoo share price won’t fall even further, especially after today’s statement.

While demand in the UK looks steady, overall net sales only rose 10%  in the three months to 30 November due to a much higher amount of clothes (particularly dresses) being returned. Performance abroad has also suffered from longer delivery times/higher costs. As a result, Boohoo is now guiding full-year net sales growth of between 12% and 14%. That’s a big reduction to the 20% to 25% previously expected.

Worrying as all this is, these numbers (and the presence of shorters) merely confirm what we already know: times are tough and this company is firmly out of favour. And, seen through a long-term lens, the best time to buy a company is often when things look bleak.

With its growing portfolio of brands, huge overseas growth potential, new distribution network and strong finances, I’m cautiously optimistic Boohoo will rise again.

Will I sell? No. Hold? Yes. Buy more? Possibly.

The post The Boohoo share price is under attack! Should I buy more, hold, or sell? appeared first on The Motley Fool UK.

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Paul Summers owns shares in 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.

Let’s take a look at what this under-the-radar firm does and, most importantly, question whether such a performance can be sustained. 

What’s this hot stock all about?

Genedrive is a molecular diagnostics business. In its own words, the company’s platform supports “the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications”. These include Hepatitis C, military biological targets and, perhaps most importantly, Covid-19. 

Genedrive has been listed since 2007 and shareholders have enjoyed/endured a rollercoaster ride since. However, anyone buying at the height of panic in March 2020 will have done extremely well. Just before Boris Johnson announced the first UK lockdown, the Genedrive share price languished at just under 9p. On Friday, the very same stock closed at almost 62p. 

Why is the Genedrive share price flying? 

On 29 November, Genedrive revealed that its COV19-ID test had been supplied to “a range of potential commercial partners” for review and evaluation. This news was compounded by last week’s announcement that the company had now received the CE mark as intended. In other words, COV19-ID conforms with European health, safety, and environmental protection standards.

I won’t go into the science too much here, save to say that Genedrive’s test (performed via a nasal swab) can deliver positive results in 7.5 minutes. Negative results arrive within 17 minutes. As CEO David Budd commented, this will “allow immediacy and convenience in molecular testing, rather than waiting many hours or days for results from a central laboratory.”

On top of this, Genedrive’s test “offers several orders of magnitude improvement in sensitivity” compared to the usual antigen lateral flow devices.

Rapid results should mean a reduction in transmission rates and, ultimately, a quicker return to normality. That’s potentially great news for, well, everyone but particularly for any operator in the travel, leisure and hospitality space.

More to come?

It’s clear that the Covid-19 tale has several more chapters to run. That could provide a sustained boost to the Genedrive share price. This is especially if deals with partners are announced over the next few weeks and months. A market-cap of just £57m certainly suggests a lot more room for growth compared to the likes of, say, diagnostic peer Novacyt.

Even so, it’s clear only those blessed with a stoical temperament should apply. While GDR has soared in only a few weeks, it’s still way below the 52-week high of 165p. Those who picked up the stock in February or March will still be nursing heavy paper losses.

Due to a relatively small free float (the number of shares available to trade on the market) of 60%, I think this kind of volatility is set to continue. As evidence of this, the Genedrive share price dropped almost 12% on Friday. 

(Very) cautious buy

Recent news from Genedrive is undoubtedly encouraging and I wouldn’t rule out further gains going forward. As such, I’d consider buying a slice of the company today. That said, I’d be sure to only use money I could afford to lose while also remembering that there are other ways to take advantage of the market’s Covid-19 concerns.

The post The Genedrive share price is up over 230% in one month! Is there more to come? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

“Slower than expected” sales

At the time of writing, the share price of video game developer Frontier Developments (LSE: DEV) has tumbled almost 43% in 2021 to date. This isn’t a complete surprise.

Back on 22 November, Frontier announced that PC sales of its latest release — Jurassic World Evolution 2 — had been “slower than expected“, due to a “crowded release window“. That’s despite generally favourable reviews from critics and gamers alike.

Unfortunately, copies of another one of the firm’s titles — Elite Dangerous: Odyssey — haven’t been flying off the shelves either. As a result, Frontier is revising its guidance on full-year revenue to between £100m and £130m. That’s a significant reduction on the £130m-£150m once hoped for. A lot will depend on how the company fares over the run-up to Christmas, hence why investors are understandably skittish.

Opportunity knocks?

Could this be a great opportunity? Possibly. As the company itself notes, the arrival of the new Jurassic World Dominion movie next year could generate better demand for its latest release. There are also Frontier’s first F1 management and Warhammer games to look forward to. Demand for video games (and, consequently, video gaming stocks) could also return if further restrictions are brought in to tackle the Omicron variant.   

My issue with Frontier, however, remains its valuation. A P/E is 47 isn’t excessive compared to some tech-related shares. It is, however, very rich for a stock that depends on a small number of titles performing as expected.

Without a compelling margin of safety, Frontier stays on my watchlist for now. That said, further slippage in the share price could force my hand.

Another growth stock disappoints

Online bathroom-related products seller Victorian Plumbing (LSE: VIC) is another growth stock that’s crashing in 2021. Since hitting a high of almost 342p back in June, its value is now down over 70%. 

A good proportion of this fall came following last Thursday’s full-year numbers. Despite posting a 29% rise in revenue to just under £269m, investors were shaken by the company’s rather subdued outlook on trading as the UK home improvement/DIY boom shows signs of having run its course. This was a risk I raised not long after the firm’s IPO.

Does a slowdown in growth justify such an awful share price collapse? I’m not so sure. In fact, Victorian Plumbing shares could offer great value now, even if gross margins fall, as expected.

Barriers to entry aren’t exactly high, but Victorian should continue growing its already significant presence through a hefty marketing budget. Other attractions include a solid balance sheet and a strategy to target more trade customers going forward. Founder and CEO Mark Radcliffe also remains a major shareholder. This should make him even more determined to see the company recover. 

Like Frontier, Victorian Plumbing remains on my watchlist. However, a lot of bad news does look to be priced in. A bounce could be on the way if trading proves even slightly better than a now very pessimistic market is predicting.

For now, I’m letting the dust settle.

The post These UK growth stocks have crashed! Time to buy? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. 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.

I’ve always had a soft spot for online musical instrument and equipment retailer and growth stock Gear4music (LSE: G4M). Unfortunately, today’s interim results from the small-cap have been poorly received by the market and the share price tanked 20% as trading commenced. What’s got investors so spooked?

Bum note

Revenue over the six months to the end of September came in at £64.7m. This was down 8% on the same period in 2020. However, one must remember that G4M benefited hugely from multiple UK lockdowns over that time. As such, beating that haul would always be a challenge. Earnings before interest, tax, depreciation and amortisation (EBITDA) also fell 43% to £4.8m.

On a more positive note, revenue and EBITDA were still 31% and 140% higher respectively than in the same six months in 2019. For me, this is a better gauge of how far the company has come. 

Here’s where things get more problematic. While the dip in sales was inevitable, investors didn’t like the news that revenue over G4M’s third quarter to date has been “slower than expected due to ongoing Brexit supply chain challenges“. Sales in Europe had also been slower than predicted.

This loss of momentum has forced CEO Andrew Wass and co to revise their guidance for the full financial year. EBITDA of “not less than £12m” is now expected — 36% lower than last year. It’s also lower than the £14m projected by analysts.

All this doesn’t look great, especially as the company only upgraded its forecasts back in June following a storming Q1. Nevertheless, G4M does expect the aforementioned challenges to be sorted out by the final quarter as its new distribution hubs in Ireland and Spain get up to speed.

Clearly, a successful pre-Christmas trading period is vital if the shares aren’t to fall further. However, I’m inclined to think that today’s fall is simply a bum note. The unstoppable rise of online shopping, even for very specific items like instruments, should allow G4M to continue grabbing market share. The proposed move into the audio-video space via the acquisition of AV Distribution Ltd is also a sensible move and should help to diversify earnings. 

There’s still much to like about this growth stock and I’d be willing to buy at this level.

On song

G4M is not the only music-related growth stock out there. Another company — audio products supplier Focusrite (LSE: TUNE) — also reported to the market this morning.

In sharp contrast to G4M, TUNE reported a 34% jump in revenue to just under £174m. Adjusted EBITDA also soared 67% higher to £47.5m as musicians and podcasters snapped up Focurite’s products “in record numbers” over lockdowns.

There could be more good news to come. As live events return, CEO Tim Carroll said that demand had “remained strong” into the new financial year. Product launches also make him “cautiously optimistic” on achieving “modest revenue growth“. However, operating costs are expected to rise, partly in light of supply chain pressures.

Of the two growth stocks mentioned, I’d probably snap up G4M over TUNE. I’ve always felt that the latter’s valuation was getting ahead of itself. Even before today’s 8% rise, the stock was trading on 39 times forecast earnings. As good a company as this is, that’s very rich.

For me, G4M probably offers a better margin of safety.

The post The Gear4music (G4M) share price just crashed. I’d buy this growth stock now appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Focusrite and Gear4music. 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.

Revenue and profit jump

Unfortunately for existing holders, here’s where the good news ends.

CEO departs

In a separate statement today, ASOS revealed that CEO Nick Beighton would be leaving the company with immediate effect. A search for his successor is now underway.

Clearly, all companies will periodically require new leaders/fresh blood. After 12 years at ASOS (and six leading it), Beighton’s departure isn’t entirely unexpected. For its part, the company reflected on wanting to have the best team in place to target annual revenues of £7bn within three to four years and become “one of the few truly global leaders in online fashion retail”.

If this were the case, however, you would think that a new CEO would already be waiting in the wings. The fact that no one has been lined up is disappointing, in my view.

ASOS share price: a warning?

Despite recovering slightly, the ASOS share price is down a bruising 10% as I type. This means the company’s value has nearly halved in 2021 so far. In the last 12 months, it’s down a staggering 53%.

Things could easily get worse in the months ahead. Supply chain pressures won’t go away quickly. In fact, the company believes that this issue will lead to “mid-single-digits” revenue growth in H1. 

When this headwind is combined with further investment and a return to normal returns rates, full-year pre-tax profit is now predicted to between £110m and £140m. Achieving the lower number would represent a near-40% decline. Seen from this perspective, I’m not surprised the ASOS share price has tumbled again.

My verdict

I’ll hold my hands up and say that I thought ASOS already presented as a potential bargain before today. Although no one can reliably predict where share prices will go in the near term (not to mention accurately call a management merry-go-round), my timing was clearly off.

Even so, I continue to believe that the fragility of the ASOS share price is ideal for patient growth investors who can march to their own beat. Despite the departure of its CEO, this remains a good business with £200m in net cash, a huge following and a sound strategy for growth (including the acquisition of Topshop and a partnership with Nordstrom). 

Were it not for the fact that I’m already heavily invested in rival Boohoo, ASOS would probably top my shopping list today. The sector sell-off looks overdone, in my opinion. As things stand, however, I’ll remain on the sidelines for now.

The post The ASOS share price crashes again. Here’s what I’m doing now appeared first on The Motley Fool UK.

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• How these 2 dividend shares could help an ISA investor target a £1,639 income in 2026

Paul Summers owns shares in boohoo group. 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.

The Boohoo (LSE: BOO) share price crashed in early trading this morning. This is despite news the fast-fashion giant had achieved record sales over the six months to the end of August.

Let’s take a deep dive into today’s statement and extract the key points that current holders (like me) and prospective buyers need to know if we’re to decide whether this is fall’s justified.

Reasons to be cheerful

Why not start with the positive news? For me, there was actually a lot to like in today’s statement. 

Claiming to be “leading the fashion eCommerce market” is no small boast. With Boohoo, however, it’s starting to look increasingly justified. The business achieved £976m in sales over the period — a rise of 20% over that achieved in the same period in 2020.

More importantly, this was 73% up on the £565m logged two years ago. Considering the damage wreaked by Covid-19 last year (and despite Boohoo managing to do very well considering), I’m taking this latter percentage as better evidence of just how well the company’s expanding.

What’s more, this growth isn’t restricted to its home market. In addition to sales increasing by 81% in the UK over this two-year timeline, Boohoo’s international sales jumped 63%. A 126% rise in the US is further evidence of just how well the company’s travelling.

When you consider how much criticism it’s has faced over the last year, due to concerns over the quality of its suppliers and its potential to impact shoppers’ behaviour, this is pretty stellar stuff. 

Boohoo’s share price crash

So why the crash? There are a few reasons. Despite the huge sales figure, adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) fell 5% to £89.8m. As the company pointed out, this was 40% higher than that achieved in 2019.

However, it was lower than what the market was expecting, due in part to “£26m of freight and logistics costs inflation.” And the market can be brutal if it doesn’t get what it wants. Adjusted pre-tax profit fell 20% to £63.8m.

Although no great surprise, some investors may also be put off by the company’s intention to continue throwing cash at existing and new brands. Capital expenditure for the full year is now likely to be in the region of £275m — 10% higher than the maximum Boohoo previously predicted. Due to infrastructure and marketing spending to date, Boohoo’s war chest of cash is already much depleted to £98.4m. 

Other possible reasons for the Boohoo share price tumble include a reversion to pre-pandemic return rates and competition from physical stores. Neither of these should really come as a surprise, but investors are clearly in an unforgiving mood. 

And then there was the change in guidance…

Lower sales growth

Today, Boohoo said it expects full-year sales growth of between 20% and 25%. Previously, it had targeted 25% growth. For a company that’s consistently raised expectations over the years, that was always likely to sting. 

To achieve this, BOO will need to post growth of 20-30% in the second six-month period. On a positive note, the company made a point noting that demand for its fashion brands had improved last month, especially in the UK. This momentum has apparently continued into September with gross sales growth higher than that seen in Q2. 

Naturally, there’s no sure thing when it comes to business and, consequently, investing. As things stand, Boohoo is expecting the impact of Covid-19 factors to “normalise over the medium term” but there’s no guarantee this will happen. Moreover, the initial rush to purchase new clothes as the UK emerged from multiple lockdowns could/will moderate. Competition from online-only rivals such as ASOS will remain fierce too. 

Those rising freight, logistical and labour costs certainly won’t disappear overnight either. Again, Boohoo believes these headwinds will eventually reduce thanks, in part, to its recent investment in its infrastructure. But again, it has little control over this in reality. Indeed, Boohoo already thinks margins could fall to 9-9.5% from the previous estimate of 9.5-10%. This seems likely to be another reason for investors heading for the exits this morning. 

Operational progress

As a holder, I need to be comfortable with the above. And I am. Short-term headwinds aside, Boohoo’s a very different beast than it was even last year. Having snapped up brands when everyone else was losing their heads, the company now has an addressable (and dressable) market of 500 million potential customers.

How much of this it’s able to capture remains to be seen. Even so, significant progress has already been made on an operational level. Over the six month period to August, Boohoo has relaunched four new brands it bagged on the cheap.

Of these, Debenhams is by far the most interesting acquisition for me since it opens up a whole new set of markets, including homewares and beauty. If it can work its magic here, today’s fall in the Boohoo share price will be but a blip in time.

On top of this, there’s a commitment to opening a new distribution centre in the US. This should further boost Boohoo’s presence in what’s already proving to be a very lucrative market for the £3bn-cap.

Away from the headline numbers, there’s also clear evidence (in my opinion) that Boohoo is actively addressing those ESG concerns via its ‘Agenda for Change’ initiative. Lists of UK and international suppliers have now been published, providing visibility to concerned investors. The company is also beginning to stock more sustainable clothing and will launch a ‘resale platform’ next year.

Staying put

As a holder of the stock, I’m obviously gutted by the market’s reaction to today’s news. It is, however, not completely surprising, given the tendency of traders to sell first and evaluate later.

Share price shenanigans aside, the fact that Boohoo is experiencing similar problems to other listed companies, but still managing to grow strongly, gives me a lot of confidence. If anything, I believe today’s crash in the Boohoo share price is a golden opportunity for a long-term holder such as myself to continue increasing my stake in the company.

The investment case hasn’t changed, after all. If I’m truly the Foolish long-term investor I believe myself to be, I simply need to sit tight and ride out the storm.

The Boohoo share price is now 40% below where it stood this time last year. Anyone buying back then has my sympathies. Notwithstanding this, the margin of safety is surely now better than it’s been for a very long time.

Having made the mistake of snatching at profits with Boohoo in the past, I’m in for the long ride. 

The post The Boohoo share price has crashed! What’s going on? appeared first on The Motley Fool UK.

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Paul Summers owns shares in boohoo group. 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.

Winning AIM stock

Headquartered in Israel but with offices around the world, Tremor is a leader in Video and Connected TV advertising. Its platform helps clients, such as Amazon and Disney, “reach relevant audiences and publishers to maximize yield on their digital advertising inventory“. As one might suspect, the gradual recovery in economic conditions and business confidence over the last year or so has been a boon to the company.

This month’s results — covering trading in the first half of 2021 — showed a company in rude health. Revenue more than doubled to $152.4m. In addition to being completely organic, CEO Ofer Druker said that this growth was “one of the highest” across Tremor’s peer group. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed a staggering 3,545% to $64.8m year-on-year.

Another reason for the share price rise is the recent listing on NASDAQ (home of tech titans such as Alphabet and Facebook). Having a joint listing in the US should allow is to raise more money in the future to help fund acquisitions as well as provide working capital. Almost $129m was raised from the IPO in June.

Can it continue?

Unsurprisingly, Tremor’s management is bullish on the company’s outlook. It now expects Q3 revenue (excluding traffic acquisition costs) of “at least” $75m and adjusted earnings of around $37m. However, this is dependent on no “major Covid-19-related setbacks that may cause economic conditions to deteriorate or otherwise significantly reduce advertiser demand“. To be fair, I think this would apply to most listed firms. 

But isn’t this encouraging guidance already reflected in the price? Well, 26 times earnings is what I’d need to pay for the stock right now. That’s high, although arguably not excessive compared to elsewhere in the market. Knowing that the company looks very financially secure helps takes the sting out (TRMR has zero debt and had $275.5m in cash at the start of July). I don’t mind paying up for stocks as long as they look sufficiently resilient. 

However, it’s worth me being aware of a few things. For one, the Tremor share price has had some very volatile days. Last Friday, for example, it was down 4%. In the past, it’s had a few days where it has climbed and fallen by double-digit percentages. A low ‘free float’ might be partly responsible.

While not a risk as such, it’s also worth stating that there’s no dividend stream. So, if I were hunting for income, I’d need to look elsewhere. 

Tempting buy

Tremor International is a fine example of how AIM stocks can provide incredible returns over a short period. And while buying one year ago would clearly have been a far better thing to do, I must say that I still like the look of the shares now.

As long as I maintain a diversified portfolio (somewhat mandatory for those fishing for winners in the junior market), I’d be comfortable picking up some TRMR when markets reopen tomorrow.

The post This AIM stock has exploded. Is there more to come? appeared first on The Motley Fool UK.

More reading

• Lost money on Diageo shares? Consider buying this £2.19 FTSE stock to try and make it up
• How much is needed in an ISA to target a £2,764 monthly passive income?
• Alphabet could rise to $427 say analysts, but is Microsoft the better Mag 7 stock to consider buying for an ISA?
• At 27 years old, will a cash ISA or Stocks and Shares ISA help build wealth faster?
• How these 2 dividend shares could help an ISA investor target a £1,639 income in 2026

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.