Having delivered for so many early investors between 2014 and mid-2017, the share price performance of fast-fashion online retailer Boohoo Group (LSE: BOO) hasn’t been quite so predictable over the last 18 months, or so.
Nevertheless, today’s full-year results won’t have done the company’s chances of eventually breaching previous price highs any harm at all.
“Global opportunity”
Even the most sceptical market participant would have a hard time convincing anyone that business at the e-commerce firm was anything other than excellent. Group revenue jumped by 48% over the year to the end of February (to £856.9m) with growth seen in all regions where it operates.
With the number of active customers now topping 7m and a huge following overseas, sales at the signature Boohoo brand came in 16% higher than in the previous year at £434.6m.
Even more encouraging, revenue at PrettyLittleThing more than doubled to £374.4m, thanks in part to the company’s ability to attract high profile celebrities to endorse the brand.
Although starting from a lower base, sales from Nasty Gal also soared 96% to just under £48m. With figures like these, it’s only natural for management to be confident.
In his first set of results as CEO, former Primark man John Lyttle said that ongoing investment (such as the relocation of PrettyLittleThing’s distribution centre to Sheffield and the extension to its facility in Burnley) had allowed the company “to develop a scalable multi-brand platform that is well-positioned to disrupt, gain market share and capitalise on what is a truly global opportunity.”
So, it’s time to pile in?
Boohoo’s shares were up a little over 3% in early trading, suggesting the market is more than satisfied by today’s numbers, which also included a meaty 38% rise in pre-tax profit to a little under £60m.
Nevertheless, I continue to be torn as to whether the shares are a buy right now. Arguments in favour include there being no sign of recent performances slowing with news that new fiscal year trading had got off to a strong start.
Indeed, trading so far in 2019/20 has been “encouraging“, according to the company. A revenue growth target of somewhere between 25% and 30% for the new financial year was also set.
The rise in popularity of PrettyLittleThing and Nasty Gal will surely continue as well. Indeed, the possibility that the former could overtake the main brand in terms of sales as it enters new markets is very real, in my opinion.
Another positive is the fact that Boohoo continues to boast a bulletproof balance sheet with net cash up 43% on last year to £190.7m.
As good as all this sounds, however, it’s hard to get away from the fact that the stock still looks very pricey. Before today, predicted earnings per share growth of 25% in the next financial year gave a P/E of 44.
Frothy valuations such as this increase the possibility of investors being disappointed at some point in the future. As legendary investor Howard Marks once put it: “High prices collapse of their own weight.“
Other things worth considering are the fickleness of Boohoo’s target market and what impact Brexit could eventually have on consumer spending. Ongoing capital expenditure will also mean no dividends for the foreseeable future.
So, while Boohoo continues to impress, anyone considering buying any highly-rated stock must be confident in their ability to know when the fine line between optimism and excessive bullishness has been crossed.
