In the last three years, no firm listed on the AIM 100 has lost more value than fast fashion brand boohoo (LSE: BOO). The share price is down 87%, the company has lost over £4bn in value, and I can now snap up a share for only 53p. Is that too cheap a price to pass up for this UK stock?
No company can grow forever
boohoo is a growth stock, so I’m looking for value from my investment by the share price going up rather than receiving dividend payments. This strategy can offer market-beating returns if I hold shares in the next Amazon, Tesla, or AstraZeneca. But there’s more uncertainty with such stocks too.
A quick look at revenue for the Manchester-based fashion retailer is telling. Sales are up, but growth is slowing. And while full-year 2023 results aren’t out yet, the four months to 31 December showed a decline in sales across all regions at an average of 11%.
| 2018 | 2019 | 2020 | 2021 | 2022 | |
| Revenue | £580m | £857m | £1,235m | £1,745m | £1,983m |
| Growth | 97% | 48% | 44% | 41% | 14% |
It gets worse though. boohoo was unprofitable in 2022 and has a negative price-to-earnings ratio. While not unusual in a growth stock, when combined with declining revenues it points to an uncertain future and goes some way towards explaining the cratering share price. But it’s not all bad news.
A $1.7trn industry
Rampant inflation has created a tough period for companies, especially retailers that sell non-essential products like clothing. So the poor results above could just be a temporary blip. If this was the case, then buying in at 53p might be immensely profitable further down the line.
The online fashion industry is worth $1.7trn. That’s a huge figure compared to boohoo’s market cap of £670m and shows there could be a lot of growth left, particularly in emerging markets.
And I think there will always be big demand for cheap but fashionable clothes. Primark’s success is proof of that.
In fact, if the company simply returned to the 2020 share price of 413p, I would get a 769% gain from any shares I bought today. That high was reached during the first Covid lockdown, however, when investors were perhaps more bullish on the long-term viability of online retailers.
Am I buying?
All in all, I feel recent issues of inflation and cost of living do account for the drop in share price. And that could mean now is a great time to buy in.
The online retail industry is still young, and I think there will be a few big winners. Will boohoo be one of them? Maybe. I’ll be putting it on my watchlist for now.
The post Down 87%, should I snap up this UK fashion stock for only 53p? appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon.com, Boohoo Group Plc, and Tesla. 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.
