It is safe to say that Boohoo (LSE: BOO) has had a turbulent 2020. The shares fell to 157p in March but peaked at 412p in June.
The AIM darling has been a clear winner of the global pandemic. The online fashion retailer has seen a surge in sales as people continue to work from home during Covid-19.
Hargreaves Lansdown investors have been taking advantage of the volatility of Boohoo shares. It is within the top 20 most bought stocks on the investment platform. Looking at marketscreener.com, out of 23 analysts, 10 rate the stock as a ‘buy’.
So what now for Boohoo shares? Let’s consider the investment case.
Portfolio of brands
Boohoo operates a portfolio of brands including PrettyLittleThing, BoohooMan and NastyGal. During 2020, the company has gobbled up high street victims of the pandemic such as Oasis and Warehouse.
Once again Boohoo is in the spotlight following the collapse of Sir Philip Green’s Arcadia Group, which owns brands such as Topshop, and Wallis. Given Boohoo’s acquisitive history with regard to struggling brands, it is seen as a potential buyer for Arcadia’s brands. Competitors such as ASOS and Mike Ashley’s Frasers Group are also in the running.
The online retailer certainly has the cash after it completed a £200m funding round earlier in May. Boohoo is clearly adding to its portfolio of brands by taking “advantage of the numerous opportunities that are likely to emerge in the global fashion industry” in the short term.
History of problems
Boohoo is not without its faults. Earlier this year the company was the centre of a scandal over allegations of exploitation of workers at its suppliers’ factories in Leicester.
In October, Boohoo’s problems worsened and the share price fell as its auditor, PricewaterhouseCoopers (PwC) resigned over concerns of its reputation. This does not look good for Boohoo and investors could be see this as a red flag. The company has started the search for a new auditor.
Director dealings
Management believes Boohoo shares are undervalued. Shortly after PwC’s resignation, directors including Chairman Mahmud Kamani and CFO Neil Catto, as well as Deputy Chairman Brian Small, were snapping up shares.
Investors can view this level of director buying positively. Board members who purchase shares indicate that they are confident about Boohoo’s future.
Recent results
Boohoo reported a 44% increase in its half-year results with strong revenue growth across all brands and geographical regions. Despite its woes, the company continues to see demand for its brands.
Boohoo upgraded its revenue growth forecast for next year to be between 28% and 32% from 25%. The firm also expects to increase its profitability.
My verdict
Unless something further comes out of the woodwork, I believe Boohoo is past the factory scandal. The company is in a great position to acquire brands from its fallen rivals. Analysts like Boohoo but it is not cheap. The shares have a current price-to-earnings ratio of 52.
I believe Boohoo can meet its short term targets but it is a big ask for the company to continue growing its sales at the current level. I think there are better opportunities elsewhere.
