My response to the Boohoo (LSE: BOO) slide of the past 12 months was to double up on my investment. I now have four times as many Boohoo shares as I had, for only twice the price. But what’s likely to happen to the Boohoo share price now?
It’s pleasing that it has picked up a bit over the past week. But the share price is still down a painful 70% over the past 12 months. I do, however, think there are signs of change emerging, and I’m optimistic.
Firstly, let’s get one worry out of the way. In response to the war in Ukraine, Boohoo suspended sales to Russia and closed its Russian websites. That might have cut off a future growing stream of profits. But it will make little difference to the bottom line today, with Russia accounting for less than 0.1% of the group’s revenues.
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Issues with suppliers have contributed to the Boohoo share price problems. Some were found to be paying less than minimum wage, and failing to meet decent employment standards.
To cope with the resulting backlash, Boohoo pledged to improve its standards. It stopped using some suppliers, and embarked on what it called its Agenda for Change.
Reputation rebuilding
This month, the company told us it has completed that agenda, under the watchful eye of retired judge Sir Brian Leveson. Sir Brian sounds positive, saying that “the transformation is such that it is now at the point at which it can move into business as usual.” He added: “The engagement of all at Boohoo with all involved in providing independent oversight has been exemplary.”
Sir Brian did caution that “this movement does not signify the beginning of the end of the process but merely the end of the beginning.” Does this mean these problems are in the past? I don’t think so.
People have long memories, and I expect Boohoo will need some time yet to rebuild its reputation. And I reckon that will keep some pressure on the share price. Still, I’m sure there will be plenty of people keeping a close eye on things now.
Boohoo share price valuation
Even the most optimistic investor can’t ignore Boohoo’s profit warnings. But to put the negativity into perspective, all we are seeing is slowing growth forecasts, not declining profits. For the year ended 28 February 2022, Boohoo has reported 14% net sales growth (with 7% in the final quarter).
The company expects adjusted EBITDA for the year of approximately £125m. The current Boohoo share price suggests a P/E of probably less than 20 once full-year results are out in May. And I reckon that’s way too low for a company that I think still has plenty of years of growth ahead of it.
As well as the reputation risk, there are still economic risks as we exit the pandemic. The last couple of years of Boohoo slowdown has also opened the doors for growing competition. The international supply chain is struggling too.
As a result of it all, I suspect the Boohoo share price may not progress much in the next 12 months. But the stock is still a long-term buy for me.
