It was once a darling of growth investors, but how things have changed for the Boohoo (LSE: BOO) share price. Over the past 12 months, Boohoo has fallen 75%. A chunk of that, 40%, has come since the start of 2022.
Does this reversal make it one to avoid, or is it a screaming buy now?
Well, Boohoo has suffered from a series of problems. It faced issues over suppliers and, in some cases, employment practices. I do think the company is getting beyond that now. And, going by full-year results recently released, Boohoo is strongly growing its customer base again.
And then there were global supply problems, made worse by rapid expansion. While Boohoo’s retail business was growing strongly, it had to rely increasingly on a supply infrastructure beyond its control.
Increasing capacity
But Boohoo is addressing that too. During the past year, the firm says it has increased its warehousing and distribution capacity, and is now capable of servicing more than £4bn in net sales.
How that faces up to the summer of global upheaval and soaring inflation we can’t tell yet. But it is a worry.
The last year brought a 61% rise in total group sales over the 2019-20 year (ended February). I think that comparative is better than 2020-21, with that year packed with pandemic anomalies.
Boohoo also reckons it significantly increased its share in its two key markets — the UK and USA — from pre-pandemic levels. Putting that into figures, UK revenue grew 27%.
What’s the problem?
With all this upbeat news, why is the Boohoo share price still stuck in a big slump? There’s a downside in the latest results. Adjusted pre-tax profit fell 24% from 2019-20, and adjusted diluted EPS dropped 25%.
What do I make of all this? It doesn’t really surprise me to see profit falling after a year of supply problems afflicting all sorts of consumer-facing companies. I confess though that the retail prospects for the coming year scare me.
Still, I can’t help feeling that pursuing market share is the right thing for Boohoo to do in these circumstances, especially consolidating its core markets. External economic conditions have to be left to themselves to sort out.
Cash flow
But while we sit and hope for the profit situation to recover, there’s one niggling issue. It’s cash, and whether Boohoo has enough to keep its revenue growth on target.
On that front, cash flow almost dried up last year. And the meagre £1.3m net cash on the books makes me twitch a bit. But the company has just agreed a new revolving credit facility of £325m, which eases things.
I think the biggest risk facing the Boohoo share price, on top of weaker profits, is sentiment. The market is firmly against the stock right now. And I’ve seen that kind of thing go on for years.
On balance, would I buy Boohoo shares? I already have, doubling down earlier this year. But I’m concerned about the economic situation and I’m not buying today. Boohoo is a hold for me at the moment.