The Boohoo (LSE: BOO) share price has been volatile recently. Last week, shares in the fast-growing online fashion retailer crashed again.
Hargreaves Lansdown investors have been taking advantage of the share price volatility. Believe it or not, BOO was the most bought stock on the investment platform last week (by quite a margin).
Is buying Boohoo shares right now a smart move? Let’s take a look at the investment case.
Why did Boohoo’s share price fall?
The reason Boohoo’s share price has fallen recently is that the company announced that PricewaterhouseCoopers (PwC) will be stepping down as its auditor. Boohoo stressed that PwC is still the group’s auditor at present. However, it said that it had recently launched a competitive tender process for the group’s audit, and that PwC was not participating in this process.
It doesn’t look great that the auditor is stepping down. Especially when you consider all the supply chain issues that have come to light recently. This could potentially be seen as a red flag. However, given that PwC is still auditor, we shouldn’t jump to conclusions. We need a more complete picture of what’s going on.
Directors are buying
One thing that could provide us with a little more insight here is director dealing. Directors tend to have the most information on their firms and their future prospects. If they’re buying company stock, it’s a sign they’re confident about the future.
Looking at director dealing data, I think it’s very interesting that three top-level Boohoo directors purchased stock last week when the share price tanked. The insiders who bought stock included:
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Founder and Executive Chairman Mahmud Kamani, who picked up 300,000 Boohoo shares at a price of £2.43 per share
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CFO Neil Catto, who bought 5,825 shares at £2.57 per share
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Deputy Chairman Brian Small who purchased 10,000 shares at £2.50 per share
I see this director dealing as quite bullish. These are top-tier insiders. They’re likely to have an information advantage over the rest of us. This buying activity suggests that they expect Boohoo’s share price to recover.
What are hedge funds doing?Â
It’s also worth examining short interest. If hedge funds are heavily shorting Boohoo shares, it could be wise to steer clear.
Looking at shorttracker.co.uk, Boohoo only has 1.75% short interest at present. That’s not very high. Cineworld, for example, has short interest of 8.5%.
The fact that hedge funds are not betting heavily against Boohoo shares is a good sign, in my view.
Boohoo shares: a buying opportunity
Looking at this data on Boohoo shares, and considering the company’s recent strong results (revenue and EPS were up 45% and 56% respectively), I’m inclined to think that Boohoo’s share price fall is an opportunity for investors like me. All things considered, I’m not too concerned about the auditor stepping down.
I think Hargreaves Lansdown investors’ move to buy Boohoo shares, after the recent share price fall, is a smart move.