As an online fashion company, boohoo group (LSE:BOO) has enjoyed tremendous growth over a number of years. However, AIM-listed boohoo’s share price has fallen around 75% in the past year and currently trades at around 82p. I already own shares in this company, but should I be thinking about adding more at this price with a spare £1,000? Is this firm really a good opportunity for long-term growth? Let’s take a closer look.
The boohoo share price: a cheap growth stock?
By looking at price-to-earnings (P/E) ratios, I can better understand if the current boohoo share price is under- or overvalued. In other words, could I be getting a bargain?
The business has a forward P/E ratio (found by dividing the share price by its forecast earnings per share) of 17.48.
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Rival online fashion firm ASOS has a forward P/E ratio of 19.45 based on my own calculations.
While boohoo’s P/E ratio isn’t wildly lower than its competitor, it does give me an indication that the current boohoo share price may be cheap.
Recent challenges
Investment bank Barclays, however, lowered its price target from 135p to 85p in February. This was chiefly because it was concerned at how boohoo could sustain historical growth rates and how it would respond to pandemic issues.
Indeed, boohoo faced higher freight costs and supply chain issues during the pandemic. It also recorded higher returns rates as the Omicron variant hit in December.
Despite these issues, the firm appears to be growing again and I suspect there may be some re-ratings in the near future as the company recovers.
There is always the risk, however, that future variants or slow growth impact the share price.
Improving sales figures
For the three months to 28 February, net sales improved markedly. During this period, they increased 7% year on year, and 48% compared with the same period in 2019.
For the full year to 28 February, net sales showed strong improvement. They were up 14% year on year, and 61% on a two-year comparison.
This suggests that the firm is starting to head in the right direction as we move out of the pandemic era.
It also maintained guidance for earnings before interest, taxes, depreciation, and amortisation (EBITDA) of £125m.
The company appears to have put the worker wages issue behind it too. This arose in 2020 and 2021, as workers were being paid below the minimum wage in several factories that worked for boohoo.
The business has built a state-of-the-art factory in Leicester to have greater control over production.
Overall, this company has overcome a number of recent challenges. As sales begin to increase, I think the business may start publishing improved results. As a potentially cheap stock, I will be buying more shares soon with my spare £1,000.
