When boohoo group (LSE: BOO) shares launched in 2014, they opened at 85p. Now, not far off a decade later, we can buy them for under 55p.
I wonder how many back then thought that might happen? None of those early buyers, I’d bet.
The boohoo share price did fall in the first few months. But it soon took off, like many new growth stocks before it.
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As late as 2020, the price peaked at well over 400p. That was during Covid, when cash was piling into online retail shares.
And at its peak, the stock’s price-to-earnings (P/E) ratio reached almost 80.
Fall
I think a correction was always on the cards. But I didn’t expect the fall to be so huge. Not when I was buying on the way down, for sure.
Do we now have a chance to start over? Well, boohoo did dip as low as 30p at one point, so we might be past the bottom.
But a few things make me think boohoo has what it takes to turn into a top growth share buy again. And it’s not just because the price is up, close to 50%, since the start of 2023.
Retail
It does look like confidence could be returning to the retail sector, and to the fashion market.
Next shares have climbed since late 2022, even though high inflation has gone on longer than we’d thought. The price is up more than 50% since last year’s low. And it’s now up 40% over five years.
And Marks and Spencer is flying, up more than 70% since its low point last year. I might even rate M&S shares a buy now, while they’re still down close to 40% in five years.
If consumers are starting to shop in bricks and mortar stores again, that could help boohoo too. The firm opened a pop-up store in London this month, and it’s tried similar things in the past.
I think we should watch out for more high street moves in the year to come.
Valuation
I might be upbeat about boohoo, but there are still clear risks here. The main one, I think, might just be its valuation.
Forecasts don’t show any profit for at least another couple of years. That means there’s not much to glean from fundamental measures.
Underlying earnings are expected to rise strongly, though. And the City expects positive free cash flow by 2025.
That’s good, but growth investors want to see enough to get the share price to climb again. And despite this year’s gains, I’m not sure we’ve been shown that yet.
Buy?
Results for the year ended February are due on 16 May. And the last update from the firm told us to expect a 35% rise in revenue compared to 2020.
That’s from before Covid, so it could show some sort of long-term trend. But we need to know when it might get back to profit and cash flow.
Will I buy? Right now, I think some dividend shares are better value and less risk. But I’ll watch boohoo too.
