The Boohoo (LSE: BOO) share price is currently trading below 300p. In fact, the stock hasn’t delivered a great return so far this year. Since the beginning of 2021, it’s down 18% but over the last 12 months, the shares have increased by almost 10%.
What does this mean? Well, I only have to look at the share price chart to see that there has been a lot of volatility. Despite this, the Boohoo share price trades on an expensive valuation, with a current price-to-earnings (P/E) ratio of 32x.
So is now a buying opportunity? Well, I’m still steering clear of the stock as I do have some concerns.
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Bull case
The pandemic has only accelerated online shopping. And this has clearly worked in Boohoo’s favour. The retailer continues to deliver strong sales as seen from its quarterly trading statement last month.
What the company does well is sell fast fashion to a young demographic. It can react to changes in trends quickly, which has helped it grow rapidly. It made a good and relatively low-risk move by acquiring the non-store operations of Debenhams, Dorothy Perkins and Wallis.
These brands should expand Boohoo’s current customer base and allow it to scale up quickly. So far it’s progressing well in integrating these into its platform, which should start to pay off.
It has a strong balance sheet and last reported a net cash position of £199.1m. This is down from the year-end due to the company’s investment across its offices and infrastructure. But it’s encouraging to see that it’s spending capital to fuel the next stage of its growth.
Bear case
I have some concerns though. The Boohoo share price is trading on a high valuation, which means that it’s going to be sensitive to any negative news. The stock could fall further if it sees a slowdown in sales.
Some developments could have either a positive or a negative impact. Physical shops have now opened in the UK and people are socialising. This could dent its revenue going forward, but the fact that people are socialising could encourage them to buy more of its products. The company is also ramping up its expansion especially in the US. That could be good news, but it could hit profitability if plans don’t remain on track.
My other concern is its governance. Following on from its supplier scandal, it has been pulling out all the stops to polish its reputation. It has published its UK supplier list and expects to release the global version in September. Other moves include introducing new processes and additional audits.
While this is all well and good, the damage will take more than this to resolve. As a long-term investor, I’m looking for quality of corporate governance on a consistent basis. Not just some of this and a little bit of that. I also can’t help but feel that some other skeletons could come out of the closet, which could hit the Boohoo share price.
My verdict
I don’t think the shares are a good buying opportunity even though they’re trading below 300p. But the stock is certainly on my watch list as I’d like to see further evidence that its governance issues have been resolved once and for all.
