Does a massive 36% jump in the Boohoo (LSE: BOO) share price over the last five trading days (to yesterday’s close) mean the worst is over for battered and bruised shareholders like myself? Although I’m only whispering it as things stand, I believe it is.
Chinks of light
Perhaps the most obvious reason for the sudden uplift in shareholders’ fortunes is the unexpectedly positive trading update released by the Manchester-based business earlier this month.
As a reminder, net sales growth of 7% was logged for the fourth quarter. This rises to 14% for the year to the end of February. That may seem rather low for a former market darling. However, one needs to remember that Boohoo was a major beneficiary of global lockdowns. It was somewhat inevitable that performance would moderate. Many other listed firms would likely welcome such numbers with open arms.
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It wasn’t all rosy. The company saw higher return rates in Q4 compared to the same period in the previous year. And while trading continues to be reliably strong at home, international performance has been held back by supply chain pressures. Consequently, customers have been waiting longer for their clothes to arrive.
So, has the Boohoo share price bottomed?
There are certainly a few reasons for thinking that the worst might be over.
Boohoo now expects to report adjusted earnings before tax, interest, depreciation and amortisation (EBITDA) of roughly £125m. Importantly, this is in line with the (revised) guidance set by management last December. In other words, expectations are now matching reality. On top of this, a P/E of just 16 looks too low for a company that now boasts 13 or so brands, solid finances and plenty of social media savvy.
At no point have I ever believed any of Boohoo’s existing problems to be permanent either. Supply chain issues will be smoothed out, helped by a new US distribution centre in 2023. Concerns over the working conditions in factories will also be laid to rest. This is assuming, of course, that the company follows through to the letter on its commitment to address previous oversights.
Shorters attack
It’s important to put things in perspective though. Despite rising strongly in the last few days, the Boohoo share price is still over 70% below where it stood this time last year. That’s an awful lot of ground to make up, even if a resolution to the crisis in Ukraine does light a fire under UK stock prices.
Perhaps tellingly, the AIM-listed company remains a target for short-sellers (those betting the Boohoo share price will fall) according to shorttracker.co.uk. Some of this pessimism may be due to the company already stating that higher return rates are expected to continue for the first half of the new financial year. The rise and rise of competitors such as Shein might also be playing a role. Higher living costs and the subsequent squeeze on discretionary budgets can’t be helping either.
Turning point
Notwithstanding this, I’m increasingly confident that the last few days may represent the turning point in Boohoo’s fortunes. A lack of news until full-year numbers are officially confirmed (4 May) could see some profit-taking, but I won’t be selling a single share. I reckon we’ve already seen the bottom.
