When I last covered online fashion retailer Boohoo (LSE: BOO) in late August, its share price was 228p. At the time, I noted that a number of directors were loading up on shares themselves (which is generally a bullish signal) and I said that, in my view, the risk/reward proposition of the stock was “favourable.”
Fast forward to today, and Boohoo shares trade at 270p, meaning they’ve surged around 18% in less than six weeks – a great result for investors. However, looking at the growth story, I believe that there could be more upside on the cards. Here’s why.
Excellent half-year results
Since my last report on Boohoo, the group has issued a two excellent updates. First, in early September, the company announced that its performance had been ahead of expectations and that it was upgrading its full-year revenue growth guidance to 33%-38%.
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Then, last week, the company issued fantastic interim results. For the six months to 31 August, revenue jumped 43%, while adjusted diluted earnings per share climbed 46%. The company also advised that international revenues are now 44% of total revenues.
These updates show that Boohoo has significant momentum at the moment, both in the UK and internationally. If it can keep generating this kind of revenue and profit growth, I think the share price is likely to continue rising.
Strong social media game
One reason that I believe Boohoo is enjoying so much success right now is that it has a very effective social media strategy. By getting social media ‘influencers’ such as Love Island 2019 runner-up Molly-Mae Hague – who has over 3m Instagram followers – to promote its clothes, the group is able to generate a lot of interest among its target market.
Looking at Instagram numbers, this strategy is working well. Currently, Boohoo has 6.1m followers, while its subsidiary Pretty Little Thing has 11.4m followers. By contrast, Next has 1.3m followers, while Superdry has 0.52m. Clearly, Boohoo has a strong online presence and this leads me to believe that the company should be able to continue to capture market share.
Broker price targets
Finally, I’ll point out that a number of brokers have price targets for Boohoo that are considerably higher than the current share price. For example, Jefferies has a price target of 325p, while Peel Hunt has a target of 350p – 30% above the current share price.
Of the seven brokers covering the stock, six rate it as a ‘strong buy,’ which is a good sign. Additionally, brokers have been upgrading their earnings forecasts over the last month, which should also support the share price.
I’d buy
Now, I’ll point out that Boohoo shares aren’t cheap. With analysts forecasting earnings per share of 5.22p for the current financial year, they trade on a forward-looking P/E of 51. At that valuation, I wouldn’t want to be over-exposed to the stock. However, given the growth that the company is generating, I think a small allocation to Boohoo could be a good move.
