The boohoo (LSE: BOO) share price has crashed 75% over the past 12 months.
As a shareholder who still thinks its a good investment, I did the only thing I could. I bought some more. For my second purchase, I got three times as many shares for the same money as I did the first time. But have I thrown bad money after good? Or are we about to witness a boohoo share price resurgence?
Well, the slide appears to have halted, at least for now. But what makes me think boohoo shares could climb again in the next 12 months?
Firstly, there’s the valuation. Based on the current share price and on earnings per share for 2020-21, we’re looking at a trailing P/E of 10. That’s for a company still in its early days and has been growing its annual earnings at a rapid rate.
And boohoo shares had been trading at a P/E of over 50 just a few short years ago. I did think that was too high at the time. What often happens with an overheating growth stock is that one year it fails to beat expectations, and the shares plummet.
Full-year outlook
Prospects for the year just ended in February make me feel optimistic too. For the first nine months, boohoo recorded a 16% rise in global net sales. That falls short of previous years’ growth. And it fits in with the idea of a Boohoo share price crash following a slowdown.
But it’s still growth, not a contraction. And the company has just completed its so-called ‘Agenda for Change’, designed to rectify shortcomings in its supply chain and production partners.
The biggest sales improvement has been in the UK, boohoo’s biggest market, with a 32% gain. Of boohoo’s overseas markets, the USA is probably the most critical. And we saw growth there too, with sales up 10%.
Supply chain problems
But sales shrinkage across Europe and the rest of the world do point to the supply chain problems that have afflicted the company. Some of that is down to global issues coming out of the pandemic. But maybe boohoo really did expand a bit too quickly, before it had sufficient infrastructure in place.
Anyway, to learn how this sales growth will translate to full-year profits, we’ll have to wait until 4 May when the company is due to deliver results. All we have to go on at the moment is its expectations for a 12-14% rise in full-year sales.
boohoo share price risk
If I sound upbeat here, I am also aware of the potential pitfalls. We face inflation today, the likes of which we have not seen in decades. And people are sure to be more focused in 2022 on staying warm and keeping the lights on than splashing out on new outfits.
There’s also a risk that the international sales slowdown means the company has lost its early-mover advantage. And that could keep pressure on the boohoo share price too.
But I am bullish for the long term, and I’m holding.