Boohoo Group (LSE: BOO) shares were AIM darlings for part of the coronavirus crisis. The e-fashion retailer saw surging sales as people worked from home during the pandemic.
But supply chain scandals also meant that the Boohoo share price was volatile. After the spring crash, the stock rose above 400p in June but fell back to 210p in July. It closed around 331p on Wednesday.
So do I think Boohoo shares can rise above 400p again in 2021? Let’s consider the investment case.
The story so far
Boohoo is an online fashion retailer with a portfolio of brands. These include PrettyLittleThing, Karen Millen, BoohooMan and Nasty Gal. While 2020 was difficult for most high street retailers, Boohoo went on an acquisition spree.
In May, it completed a £200m funding round to take “advantage of the numerous opportunities that are likely to emerge in the global fashion industry”.
That’s exactly what Boohoo did. It gobbled up high street victims of the pandemic including Oasis and Warehouse. It’s also seen as a potential buyer of the assets from the collapse of Sir Philip Green’s Arcadia and its sales are undeniably strong.
Problems facing Boohoo shares
The group has had its fair share of problems though. It became the centre of a scandal over allegations of exploitation of workers at its suppliers’ factories in Leicester.
Boohoo shares faced further problems when auditor PricewaterhouseCoopers (PwC) resigned over concerns for its reputation. This placed a red flag on the company for some investors (and me). At the end of last year, Boohoo replaced PwC with smaller audit firm PKF Littlejohn.
This choice of auditor makes me a little wary over Boohoo shares. It loses a large reputable auditor and chooses a smaller company to represent it. I think it’s disappointing that the new auditor isn’t one of the big four accountancy firms in the UK. Especially at a time when Boohoo is facing questions over its corporate governance.
Recent concerns
Boohoo is still courting controversy and is once again under fire. It recently hosted a business conference for the senior team and suppliers with the pandemic still raging. The three-day gathering was at a luxury hotel in Dubai.
There are allegations that attendees weren’t wearing face masks. The event was also said to have angered some suppliers with some declining to attend. They were reportedly reluctant to go due to safety fears, but they could risk losing business if they didn’t turn up.
My concern is that Boohoo should be pulling out the stops to reassure investors on corporate governance and supply chain issues. An event like this, I think, doesn’t look good.
Will Boohoo shares rise above 400p?
I think it will take a lot of work and reassurance from the company for the share price to rise above 400p. Boohoo hired Sir Brian Leveson in November to provide independent oversight of its Agenda for Change programme. This is to focus on areas such as corporate governance and supply chain standards.
I’ll wait and see whether significant changes will be seen at the company before I take the plunge. While its recent trading update was positive, I reckon Boohoo shares will remain volatile and below 400p. For now, I’ll steer clear of the stock as I think there are better opportunities elsewhere.
