The Boohoo (LSE: BOO) share price has been uncharacteristically stable over the last couple of months. I think that could be set to change in May as the company reports its latest set of full-year results to the market. But in which direction will the stock go? Here’s my take.
Boohoo share price: ready to pop?
Based on its last trading update, I think it likely that Boohoo’s latest numbers will be nothing short of stellar. Back in January, the company announced revenue growth of 40% in the last four months of 2020 with all brands performing well. Reading across from rival ASOS’s recent record results, I sincerely doubt trading has dramatically slowed since.
Aside from the numbers, I suspect Boohoo will provide another encouraging update on how its ‘Agenda for Change’ programme is going. This was brought in to implement all the recommendations made following Alison Levitt’s independent review of the supply chain. So far, we know that the company has taken steps to consolidate its UK supplier base. Confirmation that directors will agree to link their bonuses to the firm’s performance on Environmental Social and Governance (ESG) measures would be another step in the right direction.
What may go wrong?
Of course, whether Boohoo’s share price rises or falls is not purely dependent on how big the numbers released on May 5 are. It also depends on the extent to which those numbers meet or exceed expectations. Those who have played the game long enough know that investing is as much about psychology as it is about anything else. The more the market asks for, the greater the chance of it being disappointed. And there will come a time when Boohoo disappoints trading-wise.
This is why I think it’s so important to consider the risks to stocks I own as much as all the reasons to hold.
Perhaps the company’s original target market may turn away when they learn it now owns more ‘mature’ brands such as Dorothy Perkins and Debenhams. Maybe they won’t care. Even if they don’t, will Boohoo’s management be successful in spinning a lot more plates than it’s been used to?
Another risk to the Boohoo share price is that online sales may moderate once coronavirus restrictions are fully lifted in June. Maybe job concerns will make people tighten their purse strings after an initial splurge. Right now, we don’t know. This is why it’s important not to get carried away on the AIM-listed giant’s prospects.
To complicate matters, the current forecast P/E of 32 is reasonable enough for a top growth stock. However, it’s still high enough to fall hard.
No crystal ball
All of the above makes estimating where Boohoo will be at the end of next month exceedingly tricky. As such, I would never buy a stock purely to try and make money over a few weeks. That’s a trader’s strategy. Some people can make it work. Most of us can’t.
Notwithstanding this, I believe there’s a higher probability than not of a positive reaction in May. Boohoo feels like a better company than it was when its valuation peaked last June.
Whatever happens, I won’t be selling as I did a few years ago (albeit with a healthy profit). This is a long-term growth play and I want to be a part of it.
