If I didn’t already own Boohoo (LSE: BOO) shares, I’d be buying now, after last week’s bumper profits boost. The online fast-fashion giant reported a 41% jump in revenue, with bottom line adjusted EPS gaining 47%. But the Boohoo share price has slipped back a bit since the results were announced. And over the past 12 months, it’s down 8.5%.
We are still looking at a 30% increase over the past two years, covering the whole of the Covid-19 crash period. But it’s been a very volatile ride, with huge swings. Why would I buy now?
I invested in Boohoo because I think the company has a great long-term future and the shares were attractively valued. I still think that. But I also think I’m seeing a contrarian buying opportunity.
It’s perhaps a risky investment, with the company still very much in a growth phase. And there’s been some negative news of late. Boohoo now owns an impressive array of brands, with Debenhams famously added to the stable. But that’s leading to some problems.
Customers have found the same clothing priced differently under different brands. And we’ve had stories of garments being relabelled from one brand and sold under another. That’s not good for customer loyalty, it’s not good for investors, and it’s not good for the Boohoo share price.
End of lockdown
Before I get to the positives, I think I’m seeing another short-term phenomenon. That’s a post-lockdown slump for online businesses that were doing so well during the crash. While we couldn’t get out to the high street, internet shopping had it sewn up. The shares stormed ahead as a result.
By June last year, Boohoo was well ahead of its pre-pandemic price. But that was overly enthusiastic, and we’re seeing the aftermath. And, as usual with share prices, I reckon the market is overreacting again, but in the other direction.
But those full-year results were sparkling, weren’t they? As well as strong profit growth, Boohoo results showed two things I think should support the Boohoo share price going forward.
Firstly, margins are fat. Boohoo boasted a gross profit margin of 54.2%, up slightly from the previous year’s 54%. And then there’s what I like best of all. Cash. At the end of the year in February, Boohoo had £276m net cash on the books.Â
Boohoo share price weakness
Never mind picking through the ruins of all those big companies shouldering growing debt due to the pandemic, looking for the best recovery hope. Well, actually, I think that can be a profitable strategy too. But while some giants were struggling, Boohoo’s cash pile jumped by £35.4m. Operating cash flow gained too, at £201m (up from £127m).
There’s a slight greyness over the outlook, mind. The company says it expects around 25% revenue growth in the current year. While many companies would be delighted with that, it’s a fair drop from the current 41% growth. That will surely underlie the Boohoo share price weakness too.
But when growth stocks see growth fall back a bit, I think that can be a great time for long-term investors to top up. I might just do that.