Online retailer The Hut Group (LSE:THG) had a day to forget yesterday. The Hut Group share price tumbled after an update on its strategy. In fact, it has been a tough month for THG. So what’s been happening? Should I look to add the cheapened shares to my portfolio?
The Hut Group share price tumbles
The Hut Group held a virtual capital markets day yesterday. The main purpose was to win investor buy-in for its 2030 sustainability strategy. I don’t think anyone could have foreseen what came next. A mass sell-off of shares wiped close to a third from THG’s market cap.
I believe investors weren’t buoyed by the update and there were concerns that Japanese investment giant SoftBank’s support for The Hut Group was cooling. The Hut Group share price tumbled due to the mass sell-off and investor unrest. Monday’s closing price was 437p per share. By the time trading closed yesterday, shares fell to 285p per share. That wiped off £1.85bn from its market cap. As I write, shares are trading for 280p per share. At this time last year, shares were trading for 595p per share.
It’s been just over a year since THG first floated on the London Stock Exchange in September 2020. It floated for a 500p per share price starting point, valuing the business at £4.5bn. Have the wheels come off or could things bounce back?
Recent events and investor sentiment dampened
A few key events in recent months have caused The Hut Group’s share price volatility in my opinion.
THG’s Ingenuity platform is a technology based e-commerce platform that it is selling to other businesses for them to increase their online presence. In May, THG entered into a joint venture with SoftBank which valued the tech division at $6.3bn. This is more than the entire value of the THG’s business following the share price fall yesterday. Shares were riding high trading for over 600p per share when the deal was announced.
Last month, The Hut Group share price began to fall. Results for the first half of the year were announced. In these results, THG announced it would be separating its Ingenuity tech division from its origins, which were beauty and nutrition. This announcement did not go down well with investors. To make things worse, a few weeks ago independent research provider The Analyst released a report expressing concerns about the prospects for Ingenuity. Since these results and the trading report, the share price has fallen by more than half.
At yesterday’s virtual capital markets day, THG said SoftBank would not be exercising the option to buy a near 20% stake in THG’s Ingenuity early. This option was part of the original deal. This seemed to spook investors and the sell-off began. I believe investors are concerned about the future financing of the business.
Buy or avoid?
There has been chatter that The Hut Group’s share price has been under attack from short sellers to drive the price down. THG even released a statement this morning to address the share price drop. Right now, I will keep a keen eye on developments but the tumbling share price and investor sentiment has led me to decide to avoid buying any shares just now. That doesn’t mean I would not buy in the future, however.