Boohoo (LSE: BOO) released first-half figures on 30 September, and the share price slumped. As a shareholder, I’m not best pleased. Or, then again, if I’m not selling today, does it matter? Well, I’m looking at a Boohoo share price crash of nearly 20% in just a few days, and that instinctively hurts.
What has gone wrong? It’s all down to profit. Adjusted pre-tax profit dropped 20%, with earnings per share down 15%. That’s mainly due to Covid-19, as the company said: “COVID-19-related distribution cost increases totalled approximately £26 million in the first half.”
As a result, Boohoo has scaled back its full-year guidance. The firm now expects an adjusted EBITDA margin of 9%-9.5%. That’s down from the 9.5%-10% from previous guidance. I don’t think that’s so bad, though the Boohoo share price reaction suggests not many agree.
I think there’s a bit to unpack here. Firstly, revenue growth appears to be continuing just fine. The company reported a 20% revenue rise, to £976m, over the six months to August 2020. A fall-off in revenue due to the ending of the lockdown boost for shopping from home? I’m not seeing it.
Additionally, revenue climbed 73% compared to same period in 2019. So, pandemic aside, we’re still seeing solid underlying growth. And compared to two years ago, adjusted pre-tax profit is up 23% despite coronavirus-squeezed margins, and EPS is up 32%.
What should I do?
So what about my purchase, and what will I do now? Firstly, I’m down a bit, so my timing was poor. But I always remember the old Warren Buffett adage that time in the market beats timing the market. If nothing else, it’s a handy comfort blanket for those whose timing stinks the way mine so often does.
Just as the Boohoo share price got a big upwards kick as an early lockdown effect, I expected that to reverse once the pandemic was over. Sure enough, it has, and it does make me wonder. When people were buying around the peak of summer 2020, did they really not expect the big price spike to fall back? You know, the way they almost always do?
Still, it’s clear now that there was more post-pandemic unraveling to come, and that I would have done better had I waited a bit longer. But when I buy a share, I go on just one thing really. And that’s my take on its valuation at the time. If I think it’s undervalued, it’s a buy, otherwise it isn’t. Simple as that.
Boohoo share price valuation
The valuation now? The company says, “elevated short-term cost headwinds experienced in the first half are expected to continue in H2“. So I’m not expecting a reversal in the profit slip between now and year-end. Assuming a 20% dip in full-year earnings, I reckon that would give us a P/E of around 28 on the current Boohoo share price. I think that’s good value for a company with Boohoo’s growth prospects.
There are downsides, for sure. I think the biggest one is that I suspect the Boohoo share price is likely to remain weak for the rest of the year. And there could be even more bearishness creeping into the picture and sending it further down.
But on the current valuation, I believe I’m seeing a top-up opportunity here.