I believe online fashion retailer Boohoo (LSE:BOO) is one of the most interesting growth stock stories of recent times. The Boohoo share price has soared over the past few years due to exceptional growth, but has faltered more recently. So what’s happening and is now a good time to buy shares for my portfolio?
Growing pains?
Boohoo is only a 15-year-old business. I think that’s quite remarkable for a business that is considered one of the pioneers of online fashion in the UK. It capitalised well on targeting tech savvy 16- to 30-year-olds as well as the dying high street. Part of the growth story has been Boohoo’s savvy brand acquisitions including Debenhams, Warehouse, and Dorothy Perkins to enhance its offering.
The past five years have seen the Boohoo share price soar as a result of this growth. As I write, shares are trading for 266p compared to five years ago when shares were trading at 120p. Although a 121% share price increase across five years may not seem extraordinary to some, there was a period when shares reached highs of 408p just last year.
Growing pains are not uncommon. Boohoo has experienced these as well. Some of its most recent challenges have include criticism of working conditions and relationships with dubious suppliers. Today it announced its supplier list as promised after the scandal last year. A lawsuit in the US regarding product pricing will have also dampened investor sentiment. Such issues have affected the Boohoo share price.
Reviewing the numbers
I believe the Boohoo share price is being affected by the factors noted above. Boohoo seems determined to overcome them, however, and has continued to invest substantially in marketing to continue its sales momentum.
I believe its last trading update in June, covering the three months to 31 May 2021, showed a positive outcome of this continued growth drive. Revenue and gross margin grew by 32% and 55% respectively. From an operational perspective, it announced a successful integration of the Dorothy Perkins, Wallis, and Burton brands. Furthermore, a new distribution centre is now up and running with another in the pipeline.
It seems analysts are expecting Boohoo to report earnings growth of close to 40% for the full financial year. This will definitely boost the Boohoo share price in my opinion. Of course, these are just projections and things may not work out as planned.
If I consider the current valuation of Boohoo and take into account these forecasts, shares look to be selling at a price/earnings-to-growth (PEG) ratio of less than one. This indicates the Boohoo share price offers growth at current levels. Its healthy cash balance makes it more tempting.
My verdict on the Boohoo share price
I am aware of the risks Boohoo is currently facing and will continue to face too. Aside from the current issues, Boohoo faces more competition than ever. The pandemic resulted in many retailers adopting stronger online presences. This could hurt financials. Economic uncertainty as well as changing labour and material costs could also have an effect on Boohoo as well.
I believe the Boohoo share price is a good opportunity right now. I would be willing to add shares to my portfolio at current levels, but I know it will not all be smooth sailing if the past is anything to go by.