Could Boohoo.Com plc be a millionaire-maker stock?

After returning over 65% in the past year can Boohoo.Com plc (LON:BOO) continue its stellar record?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Well, Boohoo.Com (LSE: BOO) has certainly already minted a handful of millionaires as co-founders and co-CEOs Carol Kane and Mahmud Kamani still hold roughly 4% and 16% of outstanding shares, together worth a combined £450m at today’s share price. But is it too late for retail investors to replicate the explosive growth Boohoo’s shares have exhibited over the past three years?

Perhaps not. Although the company’s sales have been rising at astronomical rates there doesn’t appear to be any slowdown in sight. Results for the half year to August showed group sales rising 106% to £262.9m with its largest market by far, the UK, also doubling sales during the period.

And management seems convinced there is plenty of growth to come as this summer it completed a £50m rights issue to raise capital for an expanded warehouse site. This new site will support £2bn of sales capacity in addition to its existing warehouse that has space to process up to £1bn in sales. The new location won’t be up and running until 2020 and will cost some £150m, but it’s good to see such a strong sign of optimism from a management team where insiders have such a personal interest in its shares’ success.

Yet there remain several significant roadblocks that will keep me from buying the company’s shares. For one, their lofty valuation of over 80 times forward earnings has already priced in large amounts of future growth. Second, I remain unconvinced by the long-term stability of online fast fashion retailers. Young people are fickle customers and what’s popular this year may not be in five years’ time.

Furthermore, the firm’s profits are relatively low compared to high street rivals like Zara owner Inditex, albeit by choice with investments made in expansion. That said, if Boohoo continues to need to sink millions into bringing in new customers, margins could stay depressed indefinitely and the stock’s current valuation could prove overly optimistic. Either way, I’ll be investing my money elsewhere in hopes of bagging a millionaire-maker stock.

Revenge of the nerds 

Another stock that’s likely created a few millionaires is builder of fantasy worlds and toys, Games Workshop (LSE: GAW). The firm’s stock price has risen over 300% in the past year alone and the company’s market cap has increased to over £700m.

This stellar performance is grounded in very concrete operational excellence as revenue in the year to May rose a full 33% to £158m, while operating profits more than doubled to £38m. The key to the company’s success has been refocusing on its core product in order to attract new customers and rebuild relationships with dedicated hobbyists. This has worked well so far and annual sales from each of its channels increased by at least 20% with royalty payments from video games and the positive effects of the weak pound accounting for the rest of top-line growth.  

Looking ahead, Games Workshop is unlikely to deliver this level of astounding growth indefinitely, in fact that conservative management team makes that quite clear in all its reports. But the fact that management isn’t chasing growth at all costs bodes well for the company’s long-term prospects. And with its shares priced at only 16.5 times forward earnings while offering a 3.2% yield, Games Workshop is much more to my liking.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »