The BOO share price has been one of the big winners during this year’s stock market crash. Although it fell at first, it has come roaring back.
Many assume the rapid Boohoo Group (LSE: BOO) share price growth will be hard to sustain. However, it may offer better prospects than more heavily traded FTSE 100 giants such as Lloyds Banking Group.
Measured over five years, the BOO share price is up an incredible 1,194%. That would have turned a £10,000 investment into £129,400. Over the same period, LLOY fell 66%, turning £10,000 into £3,400.
The Lloyds share price has struggled
That calculation is a bit naughty as past performance is no guarantee of future success. Also, Lloyds investors would have pocketed quite a few dividends along the way. What really matters is where the two go next.
These are tough times for banks. They face a surge in bad loans as businesses go bust and personal customers lose their jobs. At the same time, they are under intense political pressure to go easy on embattled borrowers. The BOO share price is not affected by concerns like these.
Banks also face a squeeze on net lending margins. This is the difference between what they charge borrowers and pay savers. If the Bank of England cuts interest rates to negative levels, the squeeze will worsen.
Recovering from the pandemic will take a long time. That could make it harder for Lloyds to restore its dividends.
I’d buy Boohoo shares first
Boohoo is a much simpler business proposition. All it has to worry about is selling enough clothes to keep profits growing. While bricks and mortar retailers suffer, it is taking advantage. The share price is flying as the high street falls. The firm’s May trading update said trading was “robust”. Not many were able to say that.
Covid-19 has worked in its favour. Shoppers can use Boohoo to buy the latest fashion (especially comfortable-at-home loungewear) while self isolating. And while some people have been buying fewer clothes as they slob around their homes in last year’s leftovers, that will change when they start going out again. The BOO share price could have further to climb.
While some companies are raising money just to stay alive, Boohoo has done the same for a much more positive reason. It has just raised around £200m to make acquisitions instead. Previous buys have been a success, notably Karen Millen, Coast and Nasty Gal.
Boohoo’s £200m may go a long way in the current market. There has even been talk of snapping up Topshop from Arcadia. Another attraction is that Boohoo has global reach, while Lloyds is strictly a domestic affair.
There is one problem though. The share isn’t cheap. It trades at 57 times earnings, which some will decide is too pricey. That compares to 8.5 times for Lloyds. You could balance out the risks by buying both. First, though, I’d line up Boohoo.