What do you do when you own a stock and the price crashes? One option, which I took when my boohoo (LSE: BOO) shares plunged, is to double up. I invested the same amount of money again, and I got three times as many shares the second time. And you know what happened next, of course… the price carried on down.
The boohoo share price has fallen by a whopping 87% over two years. It picked up a bit in 2023. But it’s still showing a 49% loss in the past 12 months.
So what should a poor investor do now? Give up on a lost cause, or buy, buy, buy?
A trading update for the four months to 31 December 2022 didn’t really give us much to shout about. Revenue, at actual exchange rates, fell 11%. The UK revenue was down 11% and US revenue dipped 12%. And those are the company’s two biggest markets.
Revenue from the Republic of Ireland and Rest of the World didn’t fall as much, by 8% and 9%. But those are much smaller market segments for boohoo.
For the full year to 28 February, the company expects a 12% revenue decline. Adjusted EBITDA in line with market expectations would produce a 3.5% margin, approximately.
A bit of brightness came from a 35% rise in revenue compared to the same quarter in 2020. But that’s from the year that was the worst blighted by the Covid pandemic. So it’s not exactly making me want to stop typing and rush out to buy.
Chief executive John Lyttle did say the company has “reduced inventory by 27% year on year“, and spoke of “strong cost control and cash management” and continuing “operational and cost efficiency across the business“. So those are positive.
I did like boohoo’s early-mover advantage. It wasn’t the first, but was able to learn from early mistakes at ASOS. That advantage is now long gone, and the next generation of online fashion retailers are lining up to take the lead. Interestingly, many of them are organic movers expanding from their established traditional retail chains.
At this point, I’d usually turn to analysts’ forecasts to try to get a handle on a stock’s long-term valuation. But at the moment, they’re predicting losses for the next couple of years. So there’s not a lot of help to be had there.
It’s entirely possible that sentiment is changing. Despite a continuing poor sales and profit performance this year, the shares are indeed gaining ground. It looks like all the pessimism has already been built into the share price. And times like this, times of peak pessimism, can turn out to be good times to buy.
After their big crash, boohoo shares might look like a screaming buy now. But I can’t help feeling that if I double up again, I could end up screaming for the wrong reason. I’ll hold what I have. And I’ll wait for full-year results, due in May.
The post Are boohoo shares a screaming buy right now? appeared first on The Motley Fool UK.
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Alan Oscroft has positions in Boohoo Group Plc. The Motley Fool UK has recommended Boohoo Group Plc. 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.