Shares in online fashion retailer Boohoo (LSE: BOO), which owns a number of popular brands, including PrettyLittleThing and Debenhams, have taken a huge hit over the last year. This time last year, Boohoo’s share price was near 370p. Today, however, it’s hovering around the 115p mark.
Has this share price weakness provided a buying opportunity for me? Let’s take a look.
Why has Boohoo’s share price fallen?
To understand whether Boohoo shares could be a good investment from here, we need to look at why the share price has fallen so far over the last 12 months. I see three main reasons.
The first is supply chain issues. These issues – which have plagued the whole retail sector over the last year – have impacted stock availability and international delivery capabilities.
The second is higher costs. Over the last 12 months, Boohoo, like a lot of companies, has been hit by higher input and freight costs.
Finally, there’s Omicron. This came along right at the time that demand for partywear would normally be skyrocketing.
All of these issues have impacted growth. This is illustrated by the fact that in December, Boohoo advised that revenue for the year ending 28 February 2022 would be 12% to 14%, versus previous guidance of 20% to 25%. They’ve also clearly impacted sentiment towards the stock.
Is the growth story over?
Having identified why the share price has fallen, the next step is to determine whether the company can recover. Are these issues short term in nature, or is the growth story here over?
Personally, I see this as a short term dilemma. To be clear, I do expect inflation and supply chain issues to linger in the first half of 2022. However, looking out to the second half of 2022 and to 2023, I’d expect these problems to moderate as the world slowly returns to normal.
It seems Boohoo’s board has a similar stance. “It is the view of the board that the factors currently negatively impacting the business are primarily related to the ongoing impact of the pandemic and are, therefore, transient in nature,” the company wrote in its December update. “The Group remains highly confident about its future growth prospects,” it added.
This suggests to me that the company should be able to recover from these issues and keep growing at a healthy rate in the long run.
Are Boohoo shares cheap?
As for the valuation, this seems very low, to my mind. Currently, analysts expect Boohoo to post earnings per share of 6.7p for the year ending 28 Feb 2023. At the current share price of 114p, that equates to a P/E ratio of just 17.
That valuation strikes me as attractive, given the power of Boohoo’s brands and the long-term growth potential. At that valuation, I think the stock is worth me buying.
Of course, there are risks to my investment case. One is new variants of Covid. Another is persistent supply chain and cost issues.
However, the contrarian in me sees an opportunity here right now. Given the low valuation, I’d be happy to buy more Boohoo shares for my portfolio today.