So, we have a stock that’s crashed by 90% since IPO. But it’s been on a slow creep back, and is up nearly 50% so far in 2023. That’s what happened to the THG (LSE: THG) share price. And today I ask: is it time to buy?
Formerly known as The Hut Group, the company floated in 2020 and the share price soon climbed. But a year later, it was back at its start point. And then it just collapsed.
But now, ahead of annual results for 2022, the shares have picked up. And we’ve seen a nice climb in the first few months of this year. A bit of a spiky climb, yes, but I’d expect ups and downs with a risky stock like this.
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What is it?
My first step when I think about a stock is to work out what the company does. On the face if it, THG runs websites selling beauty products, nutrition, and all kinds of things.
The company, though, describes itself as “a leading vertically-integrated, global e-commerce technology group and brand owner, powered by its proprietary technology platform, Ingenuity.“
That’s a lot of buzzwords in just one sentence.
Mixed model
So, THG sells a lot of stuff directly. And it has a platform that others can use to set up and run their own sales.
I think that makes it hard to value. Do we judge it on its own sales? Or is it a tech firm to be valued on future profits?
A lot could hinge on how 2022 went, and how 2023 looks so far. We should have FY results on 18 April, along with Q1 news for the new year.
Record sales
We know that sales hit a record £2.25bn in 2022. And it’s been a year of cost savings too.
THG saw free cash of £50m in the second half of the period. And it says it had £640m in cash and finance facilities at the end of the year.
Liquidity is the key for me here. I think we’ll hear a lot about sales, about strategic things, and about partnerships in the FY report.
But for me, it’s cash that matters. I want to see how much there is, and how much debt the company has. Net debt stood at £226m at the end of the first half last year.
Questions
How long might it be before there’s a bottom-line profit? Will there be enough cash to get that far without needing more debt or more funding?
In short, I want a lot more clarity in terms of likely cash flow and profit before I might buy. But right now, the thought of a firm with sales of more than £1bn but still making a loss doesn’t sit well with me.
So what will I do?
THG might be a great stock for the long term. Or it could wipe me out if I buy now. I just can’t tell either way. So I’ll steer well clear, at least for now.
