Looking at the performance of my portfolio right now isn’t pleasant and one position hurts more than most. It’s a bit like having my eye repeatedly poked. Boohoo (LSE: BOO) shares are down 50% in 2022 alone (so the sentiment in its name is quite fitting). In the last 12 months, they’ve fallen a staggering 81%.
Having been bullish on the stock for so long (and despite making good profits in the past), is it time to surrender and move on?
The case for selling is strong
I won’t deny that there are convincing reasons for thinking I should throw in the towel. Galloping inflation is just one of them.
Boohoo’s fast-fashion offer may not be the most expensive (actually, that’s an understatement) but this period of belt-tightening isn’t great for most retailers. New clothes are nice but the expense, even at the value end, can usually be put back.
Oh, and it’s worth remembering that things are expected to get even harder over the rest of 2022. To make matters worse, inflation is also raising costs at the company.
Boohoo shares are also extremely popular with short-sellers. These are traders who aim to make money by speculating that the price will continue falling. Ominously, only Cineworld and B&Q owner Kingfisher are more ‘hated’. Competition from the likes of fast-growing Chinese firm Shein could be behind some of this negativity.
There’s also a psychological benefit to taking a loss. Getting rid of Boohoo shares now wouldn’t be pleasant but it would stop the rumination. It also means I can take what money is left over and invest it somewhere else.
So perhaps this relationship just needs to end?
Reasons to be… optimistic
Then again, maybe not. To these eyes, Boohoo looks a better business than a few years ago.
Yes, the infamous issues with suppliers haven’t covered the company in glory. However, it has firmly committed to its ‘Agenda for Change’.
Trading hasn’t been horrific either. UK sales returned to growth in May, prompting full-year guidance to be maintained. And the business now has a large number of popular brands — including Debenhams, Karen Millen and Coast — in its portfolio.
Investors might also argue that now is the worst possible time to sell anyway. If I truly believe in the e-commerce giant, surely now is the time to accumulate? A valuation of almost 16 times forecast earnings for the next financial year is tempting.
Not alone
Another thing to bear in mind is that Boohoo is far from the only retailer whose share price is dramatically lower in 2022. AIM-listed rival ASOS is down 62% this year and 81% in 12 months. It’s also heavily shorted. Fine – that’s hardly a bullish sign but it does imply that the sector sell-off has been fairly indiscriminate.
Short sellers can be caught off guard as well. If a company performs even slightly better than expected, we sometimes get a short-squeeze. Traders rushing to close their positions can turbocharge the share price upwards.
Patience required
The Foolish philosophy is to buy and, importantly, hold on to great company stocks for years. This includes learning to ignore periods of temporary underperformance.
I think Boohoo shares are worth owning, based on the arguments presented above. So I’ll hunker down and ride out the storm.