The Boohoo (LSE: BOO) share price has had an awful 12 months. In fact, it’s the second-worst performer in the FTSE AIM 100 index over this time period, having crashed by a huge 71%. The online fashion retailer has struggled with a number of issues related to the pandemic. Costs have risen at the same time that revenue growth slowed, an unfortunate combination leading to the share price crash.
But has the stock fallen too far? And do Boohoo shares represent good value today for my portfolio? Let’s take a closer look.
The bull case
Growth has stalled in fiscal year 2022 (the 12 months to 28 February 2022). But if I bought the shares today, I should consider growth expectations in the following years. This is what could drive the share price higher.
In fiscal year 2023, City analysts are expecting earnings per share (EPS) to rebound by almost 11%. In the following year, EPS is forecast to grow by a further 50%. These growth figures over the next two years, if achieved, should boost the Boohoo share price from its five-year low of 101p today.
The stock is also much cheaper now than it has been in recent years. On a forward price-to-earnings (P/E) basis, the stock is trading on a multiple of 16. Only in 2020, the P/E was almost 50. If the company can grow its earnings by the double-digit forecasts, then the valuation could also rise. A combination of earnings growth and a rising valuation may really boost the share price.
Boohoo is also a diversified business now. It’s made some strategic acquisitions, such as buying PrettyLittleThing and Debenhams. I think the acquisition of Debenhams was a particularly good deal. It’s still being integrated into the wider Boohoo business and there could be further upside in earnings from these acquisitions going forward.
The bear case
There’s no doubt that Boohoo has had a difficult year. Revenue growth was cut from between 20% to 25%, to the now lower 12% to 14%. If this is the start of Boohoo becoming a much slower-growing business, then the share price will not likely surge from here.
However, the board did say that “the factors currently negatively impacting the business are primarily related to the ongoing impact of the pandemic and are, therefore, transient in nature”.
One of these factors is the significantly higher returns rates that Boohoo has experienced. There could very well be an impact from Omicron here as festive party celebrations were cancelled, leading to the increased return rates. However, this is a key risk to monitor going forward, in my view.
Costs were also said to have increased due to ongoing supply chain issues. The pandemic has impacted delivery times and increased freight costs, so I do consider this as a transient risk. Nevertheless, these disruptions may go on for longer than Boohoo anticipates.
Should I buy at this Boohoo share price?
I think there could be a good opportunity here. The growth expectations in the next few years are attractive, and the share price might get a further boost if the valuation rises due to accelerating growth rates. It’s not without risk, but I’d buy Boohoo shares for my portfolio today.
