To make things worse, I doubled up in February. I got three times as many shares that time for the same money. But that second £1,000 investment is now worth only £441. Together, I’ve managed to turn £2,000 into £584.

I think I can be forgiven for not allowing for the Russian invasion of Ukraine, which happened three weeks after my second purchase. That played its part in sending inflation soaring and reducing the spare cash people have to buy new glad rags. But in 2020, I definitely made a mistake.

Growth shares

I’d previously watched ASOS shares climb and then fall, back when online retailing was still a novelty. ASOS was a bit of a pioneer in the online fashion business, and it had been making good strides to capture a decent market share.

But it was on an eye-watering growth share valuation at times. And to me it was just a clothing seller, and didn’t deserve that high a premium. After all, established retailers could easily get into the same market — which is something Next, for example, has done well.

I thought the same about Boohoo when its shares started to soar. It reached price-to-earnings (P/E) multiples of 50, 60 and more. But no, I reckoned it didn’t deserve such a high rating and should have been priced closer to general clothing retailers.

I forgot!

My mistake came after Boohoo stock started falling. Suddenly, it was a lot cheaper than it had been, and the P/E fell some way from its peak. To me, it was then cheap for an online growth share… It was a growth share now, and I’d forgotten it was just a clothes store.

Examining my mistake is only useful if it makes me a better investor. So how do I see Boohoo now?

We’re in the early days of disposable income being squeezed, and discretionary spend is being cut back. That’s bad news for the fashion business. But tough times can bring us the best investments, providing we’re careful with valuation.

Hard to value

The trouble is, in September, the company said it’s now expecting adjusted EBITDA margins as low as 3-5%, down from its previously weak forecasts for 4-7%. Analysts are predicting a bottom-line earnings loss. And that means valuation measures like the P/E are meaningless right now.

I still can’t help thinking we could be at a time of maximum pessimism for Boohoo. And the share price might just have started to tick up a bit. But I think I’ll wait until we know a bit more about the second half of the year.

And maybe I’ll come back in November 2024 and tell you how much £584 in Boohoo shares today will be worth then.

The numbers 

The FTSE AIM stock has been rather volatile since the onset of the pandemic. In March 2020, it crashed to 180p. But it quickly rose to an all-time high of over 400p that summer, partly driven by increased demand for online shopping. 

Since then, the shares have performed badly and are down 70% year-to-date and 81% in the past year. The stock now trades at just 37p. 

That means if I’d invested my £1,000 in boohoo inthe New Year, I’d be left with a worrying £300 now. 

How has this happened?

Since allegations of bad working conditions in its supply chain in summer 2020, boohoo has had a run of negative press. 

The company, alongside its fast-fashion peer ASOS, is still being investigated by the Competition and Markets Authority (CMA) for misleading sustainability claims on its website. 

boohoo’s inability to shake off the bad news has spooked investors and led to a massive sell-off in the stock. 

The company’s financials are also worrying. In 2021, it announced a pre-tax profit of £125m and net cash holdings of £276m. The FY22 results showed that pre-tax profit sank to a mere £8m, while net cash holdings plummeted to £1.3m. 

There are also concerns that Chinese rival Shein will grab more of boohoo’s market share, as well as worries for the whole fast-fashion sector as consumers (and government regulations) become more eco-focused.

Future Plans

Yet I don’t think boohoo’s future demise is a foregone conclusion. There are some positive figures and news that give me hope. 

First, recent results show some improvement on past performance. Revenue is now almost £2bn, a 14% increase year on year. The business has also seen a 43% increase in active customers since 2020 — this list now sits at 20m people. 

Despite boohoo’s poor sustainability credentials, its drive to improve its record (overseen by Sir Brian Leveson) has meant big supply chain changes. And the recent partnership with Kourtney Kardashian Barker could help change this image. Her role as a sustainability ambassador could resonate with the shoppers it wants to reach. 

Also important to remember is that boohoo owns brands such as Debenhams, NastyGal, PrettyLittleThing and Karen Millen. The wide-ranging portfolio means it reaches a wide variety of consumers. Further acquisitions of higher-end high-street brands could result in even further diversification of customers. 

Should I buy boohoo shares now? 

The road ahead for the fast fashion industry and boohoo looks shaky. 

There were some glimmers of hope in its recent earnings, and new brand partnerships could lead to the online retailer gaining even more consumers. 

However, with the company is still under investigation by the CMA and with it being the most shorted UK stock right now, I think there are better companies to for me invest in.

Right now, I won’t be adding boohoo to my portfolio. 

That means I can now buy five boohoo shares for the price I would have paid for just one a year ago! Is that an outstanding buying opportunity to add to my position — or a value trap?

Sailing in a storm

I think the answer to that question depends on what happens in the coming years to boohoo’s business.

A share does not typically lose four-fifths of its value in just one year for no reason. boohoo’s profits have collapsed. After years of profit, it fell to a £4m post-tax loss last year from a £93m post-tax profit the prior year.

Cost inflation threatens profit margins and tightening consumer spending could hurt sales. The challenges for the sector were highlighted this week by awful results from fellow online retailer ASOS. Like boohoo, ASOS has lost 80% of its market capitalisation over the past year.

Clearly, online retailers are sailing through difficult waters. The fact that boohoo is not alone in feeling the pain offers me no consolation as a shareholder, however. The challenges to its business are real – and could still drag down the boohoo share price even after its steep fall.

Long-term mindset

Still, as an investor I take a long-term approach when it comes to investing.

Adopting that mentality, I ask myself whether people will still need to buy clothes in future – to which the answer is definitely yes. I also consider whether online retailers can thrive and again I think the answer is yes. I expect digital sales to take a bigger share of the market over time.

I then consider whether boohoo has a competitive advantage that could allow it to thrive in that environment. Again the answer looks positive to me. From its large customer base to a collection of famous brands such as Debenhams and PrettyLittleThing, I think boohoo has the capacity to perform well.

Why is the boohoo share price falling?

But I am looking at the same information as other investors.

Collectively, they have led the boohoo share price to fall 80% over the past year. So, am I missing something?

I do recognise risks like I discussed above. With a sharp cost focus central to many of its brands, boohoo cannot easily absorb cost inflation without either hurting profit margins or risking lower customer demand.

But I see the current share price as a potential bargain for my portfolio, albeit with notable risks. The market capitalisation is less than half a billion pounds – less than six times the company’s post-tax earnings the year before last.

Those profits already seem a long time ago and there is more tough sailing ahead in my opinion. But I see boohoo as a quality company trading at a highly attractive price. I already have a large position so to stay diversified I will not be buying more shares right now. If I held less than I do, I would happily buy more at the current boohoo share price.

One industry suffering from global economic difficulty is the fashion retail market. However, with an expected compounded annual growth rate (CAGR) of 10% through to 2026, this could be a very rewarding long-term investment.

boohoo (LSE: BOO) and Revolve Group (NYSE: RVLV) are two key players in the online fashion market. I’ll be discussing below which of these is the better cheap share for me to gain exposure to this market.

Beaten-down boohoo

Set up in 2006, boohoo has grown rapidly in the fast-fashion space, with revenue climbing from £67m to £1.98bn since 2013. Active customers rose by 43% to 20m over the past two years. Fast fashion is where trendy clothing inspired by celebrity culture is sold very cheaply in rapid time to meet consumer demand.

However, boohoo shares have fallen by 85% in the past year and, with a price-to-sales ratio of 0.26, look dirt-cheap.

But fast fashion is coming under increasing scrutiny.

Firstly, there are question marks over whether it is only profitable by paying workers criminally low wages. This is something that has plagued boohoo’s reputation, when in 2020 it was discovered that it sourced garments from a factory paying workers just £3.50 an hour. boohoo’s steep pre-tax profit decline of £124.7m to £7.8m may be evidence of this, along with increased competition and macroeconomic headwinds.

Secondly, due to the emissions and waste created by fast fashion, it may not be sustainable in an increasingly environmentally conscious world. These reputational headaches could become more serious for boohoo over time.

The case for Revolve

Set up in 2003, Revolve is also growing strongly. Revenue has climbed from $400m to $891m since 2017, and is expected to hit $1bn in 2022. In 2021, it also generated $100m of net income.

However, unlike boohoo, Revolve specialises in selling high-end clothing and accessories, demonstrated by an average order volume of $275 per customer in 2019.

It lists other brands on its site, but the data analytics it collects on its primarily Gen-Z customers’ purchasing decisions allows it to emulate successful brands based on that analysis.

Revolve has also been aided by its impressive social media strategy with its network of celebrities and influencers, such as Kendall Jenner.

However, its shares have plunged by 73% since they peaked in November 2021, due to increasing costs and inflationary pressures. In the last quarter, revenue grew year over year by 26.9%, but earnings declined by 48.4%. This shows that Revolve isn’t immune to the current economic crisis. Still, its shares look dirt cheap with a forward price-to-earnings ratio of 22 and a price-to-sales ratio of just 1.67.

Now what

Looking at just revenue, boohoo’s is more than double Revolve’s. Yet its market cap of £467m is far lower than Revolve’s $1.77bn. However, boohoo faces multiple issues targeting the core of its business model.

On the contrary, Revolve has many things going for it, such as the widespread endorsement from social media influencers and its ability to learn about its consumers trends.

Furthermore, the higher gross margins Revolve benefits from helps it better withstand the cost pressures faced in the global economy today, which is why I’ll be buying more Revolve shares.

Of course, this list changes from time to time, but as Europe heads towards a recession, I’m avoiding investing in companies that are already battling declining trends. 

I’ve found three stocks that I will avoid buying at the moment. Let’s take a look at them. 

ESG nightmare

The first company I wouldn’t invest in is Imperial Brands (LSE:IMB). The British tobacco company has struggled in recent years due to increased global regulation and public health concerns on the impact of smoking. The stock is down almost 50% in the past five years. 

An increase in ESG-specific funds may also harm Imperial Brands. Investors could avoid buying shares in the company, instead opting for more sustainable corporations. 

It must be said, the company offers an enticing dividend. At 8.3%, it’s far higher than most FTSE 100 stocks, and if I was looking for passive income stocks then I may be tempted to invest. 

However, other than the dividend, I don’t think Imperial Brands offers much else. I wouldn’t be surprised if the dividend is cut in the near future as the company struggles to remain profitable. 

Increasing competition 

2022 has not been a good year for Royal Mail (LSE:RMG). The stock has experienced a large sell-off this year – it was trading close to 500p in January and is now only worth 200p. 

The company announced that, in Q1, the Royal Mail division revenue fell by 11.5%. Given declining trends in posting mail, I think the company will continue to suffer. 

On valuation terms, Royal Mail does look cheap. It has a price-to-earning (P/E) ratio of around 3.33, which is far lower than competitors such as FedEx, which has a P/E ratio of 11. 

Even though it appears cheap, I’d avoid the stock given the increasing competition from the likes of Evri and Inpost that offer similar services at competitive prices. 

Out of fashion 

The final stock I will never invest in is Boohoo (LSE:BOO). The AIM-listed fast fashion company’s stock has plummeted in the past year and is down almost 85%. 

Despite strong performance during the pandemic, growth has significantly slowed since. In the last trading quarter the company announced a 1% fall in UK sales. 

Boohoo’s diversified business model does mean that it might not be all bad news. The company already owns the likes of Karen Millen, Coast and Nasty Gal. A further string of profitable acquisitions in the near future could help the company regain some market share as it expands its target market.

The problem for me is that it’s not just declining sales affecting Boohoo shares. The constant stream of scandals and sustainability concerns continue to plague the company and drive investors away.

And after a dip at the end of Tuesday, the shares are down 17% over two days.

From being a high-flying growth stock just a few short years ago, boohoo has fallen firmly out of fashion with investors. But there’s surely a price at which it can’t fall any further and it’s a no-brainer buy, isn’t there?

The latest update is headed “Leading the fashion eCommerce market.” My investment in boohoo shares might have fallen more than 85% in the past 12 months. But at least it’s the leader.

When a results release opens with the actual figures, not preceded by any waffling marketspeak, I know not to expect good news.

Profit crunch

Revenue figures do actually look decent, with a modest fall of 10% compared to the first six months of the previous year. Considering the way online sales were boosted by the pandemic, I’m happy enough with that.

And compared to the same period in 2019, before Covid arrived, revenue has soared by 56%. So why did the share price fall?

You know the old “revenue is vanity, profit is sanity” saying? Well, adjusted EBITDA crunched down by 42% compared to 2019. So while revenue more than doubled, profit at that level almost halved.

And it gets worse. Bottom line adjusted diluted earnings per share fell 90% compared to the first half in 2019. And the company has gone from having net cash of £207m on the books, to net debt of £10.4m.

Not a loss, but…

I suppose the one small comfort is that boohoo didn’t actually report a loss. But its adjusted profit before tax of a measly £6.2m is still pretty shocking for a company that was historically taking its market by storm.

What about the outlook? The board expects first-half conditions to continue through the second half, and I doubt anyone would argue with that. Guidance for EBITDA margins is down to between 3% and 5%. Previously, boohoo had hoped for the 4% to 7% range.

The rest of the release is all about plans to revitalise the business. Chief executive John Lyttle spoke of getting the firm “in good stead as macro-economic headwinds ease.” He reckons boohoo is confident in the long-term outlook. But he has to say that, really. It’s part of the job.

What to do?

So what should a poor boohoo shareholder like me do now? Well, I could sell my shares and buy, maybe, some soup and a sandwich. Or, perhaps I could sell a few tins of soup and double up my investment.

Seriously, first thing is to hold my hands up and admit how painfully wrong I got this one. I didn’t come close to predicting how badly things would turn out this year.

And right now, boohoo could well be a good stock market recovery buy. All joking aside, it genuinely is a pioneer of its business. And it has the experience and infrastructure to hopefully lead the market once again. Just not this year.

A tearful 2022

The company posted a 1% drop in UK revenue while overall sales plunged eight percent in the three months to 31 May. That was the first UK sales drop in boohoo’s history. It pointed to supply chain disruption and increased competition from international players such as Shein as the reason for the issue. 

While boohoo was a beneficiary of the pandemic-induced boom in e-commerce, it has since been hit hard by the cost-of-living crisis. As disposable income falls, new clothes may not be the priority for many of us. Also, online retail is a crowded market and customers expect low prices. Therefore inflation threatens to squeeze profit margins and any price hikes could lead to a fall in boohoo’s market share.

As the group looks to expand and get back to growth, demand is essential. After a poor first quarter, the half-year report will need to show significant improvements. We should have a better idea tomorrow about whether its forecast for single-digit full-year growth is realistic, but even if it is, the macroeconomic headwinds will remain. 

A path to growth

I certainly expect volatility in the short-to-medium term. However, if boohoo rides out this economic turmoil, there’s a path back to growth through its recent investments.

The group is investing heavily in its supply chain in order to crack the US market. Operations should start at a new distribution centre in Elizabethtown, Pennsylvania next year. And it has invested in rolling out automation across distribution centres in its core UK market. These investments are vital to meet consumer expectations of fast fashion. 

As well as market diversification, boohoo has invested to diversify its consumer demographics. It has long appealed to the younger generation who are most likely to be cash-strapped in tough economic periods. After acquiring brands like Debenhams and Dorothy Perkins, it could unlock fresh growth from different demographics to those who shop on NastyGal and PrettyLittleThing.

Am I buying boohoo shares?

Can the group pull off the US expansion and implementation of greater automation? If so, the market may once again value boohoo as a growth stock, making today’s price look like a bargain. I do see value in the stock as it’s trading at less than six times its 2021 earnings. That being said, demand needs to hold up in order to make a success of its ambitious investments. If the half-year results are weak, there could be further significant falls in the share price to the delight of the short sellers. For now, I won’t be investing in boohoo, but I’ll be paying close attention to tomorrow’s results and guidance.

Since the New Year, Boohoo’s share price has been slashed by more than half (65%). I think the fall is indicative of the sun setting on the fast fashion growth story. I anticipate companies like boohoo becoming the sector’s biggest casualties over the long run. Yes, I no longer consider boohoo a growth stock, and I will detail why.

Is the party over?

Fast fashion is exactly what it says on the tin. The sector is built on constantly churning out cheap, trendy clothing inspired by celebrity culture. The fashion is ‘fast’ because it is delivered at breakneck speed to the consumer.

However, the ‘fast’ nature of it is being challenged now. The churn of the speedy delivery is becoming more expensive. This is because high freight and container costs have been eroding gross margins. Meanwhile, the delivery times for the goods have extended.

Frankly, I feel this undermines the whole business model. And all the while, customer returns are increasing. These factors are the bane of an online retailer. Clearly, they have been the bane of the boohoo share price, too.

Analysts at UBS seem aligned with me regarding the sector’s challenges over the long run. The bank has forecast revenue declines of up to 30% over the next five years for the sector.

Long-term outlook for the share price

Of course, I could be wrong about the direction of the boohoo share price. The company has rather bullishly been on an acquisition spree recently. The spree has armed the Group with several brands that cater to slightly different customer segments. A diversified business model will never be a bad move in my eyes.

Reassuringly, the company also has a relatively strong balance sheet. Financial resilience is what this company will need. I am pretty sure the cost-of-living challenge will see a sharp cut back on fast fashion spending from young consumers.  

However, the most tantalising part of boohoo’s upcoming interim results this Wednesday will be its outlook. I expect to see its management strike a cautious tone regarding the medium-term prospects.

What the interim results will not highlight

Most pertinently, I believe there is a separate issue putting pressure on the boohoo share price. This relates to charges of ESG malpractice against the company that have been lingering for some time. I am seeing it have an effect on the tastes of young consumers. The sarcastic reaction on social media to the Group’s appointment of Kourtney Kardashian as its sustainability ambassador does not bode well with me as a potential investor.

I understand this is an issue boohoo is trying to mitigate. However, its efforts have landed them in hot water with the authorities regarding greenwashing before. ASOS too.

Certainly, I see changes in consumer behaviour as being more powerful than companies’ ability to respond commercially. I think this, combined with the operational challenges, will continue to weigh negatively on the boohoo share price.

Overall, I must conclude fast fashion shares have no place in my portfolio for the foreseeable future.

As an owner of the stock, I’m also feeling the pain. At the start of last year, my boohoo shares were worth around £3,500. Today however, they’re worth just £420. Ouch! So what did I get wrong here? And, more importantly, what’s the best move for me now?

Where I got it wrong with boohoo shares

It’s fair to say that there have been a lot of issues with boohoo that I didn’t see coming. For starters, I wasn’t expecting growth to slow so rapidly after the pandemic.

My view was that the e-commerce industry would continue to expand at a healthy rate after lockdowns ended and that Boohoo would continue to benefit. However, e-commerce growth has slowed and Boohoo has been impacted. For the three months to the end of May, the company’s UK sales fell 1%.

I also didn’t anticipate the supply chain and cost issues that have arisen as a result of the pandemic. These issues have hit all retailers, not just Boohoo, reducing profits significantly.

Additionally, I wasn’t anticipating the continued sustainability issues here. I thought boohoo had a better handle on this. However, the issues refuse to go away.

Finally, I thought brand power was stronger. Recently, interest in the company’s brands, including boohoo and PrettyLittleThing, has declined. This is illustrated in the Google Trends chart below (note that 100 represents peak interest).

It seems competition from rivals, including Chinese e-commerce powerhouse Shein, has taken its toll on the brand. All in all, I misread the outlook quite badly here (in the short term at least).

What do I do now?

It’s hard to be bullish on boohoo shares right now. Its brand power has faded and consumers are tightening their belts due to the energy-related cost-of-living crisis (another issue I wasn’t expecting a year ago). So the company’s performance could be underwhelming in the near term.

Meanwhile, short sellers are aggressively targeting the stock. According to shorttracker.co.uk, boohoo is currently the most shorted stock in the UK. This means hedge funds expect the stock to continue falling.

Having said that, I’m not convinced I should be selling out of boohoo now.

With my shares worth just £420, they’re now a very small part of my overall portfolio. So instead of selling, I’d rather hold on to see if the company can turn things around. I’ll stick the shares in the bottom drawer and come back to them in a year or two.

This approach could result in further losses for me. If performance continues to deteriorate, or the company is fined for sustainability-related issues, the stock could continue its downward trend.

However, I’m comfortable with this risk, given the potential upside if sales and profits do pick up. It’s worth noting that the stock currently trades at just 12 times next financial year’s earnings forecast. So if performance does start to improve, the stock could get a sharp valuation re-rating.

But with shares in the online fashion retailer now selling for pennies, I think they are a steal for my portfolio. I see some risks but think there could also be rewards in future. Let me explain my take on both those aspects.

Risks to boohoo

First, I think it is helpful to recognise that there are real risks here. A share does not typically lose over four-fifths of its value in the space of 12 months for no reason.

Some of these are risks faced generally by many retailers right now. Cost inflation threatens to squeeze profit margins. The low prices at which boohoo sells many items gives it limited space to pass such price rises onto shoppers without hurting sales. A tightening consumer spending environment could lead to people buying clothes less frequently than before.

boohoo also faces risks of its own making. Its reputation among socially conscious shoppers is still recovering after poor labour standards at some of its suppliers were exposed several years ago. The company has taken moves to fix the problems, but bad smells linger.

Long-term growth prospects

But I think the investment case for boohoo is strong.

In the long term, I expect more and more people to buy clothes online. That means the size of the market should grow. boohoo has a strong position within that market. It has deep experience of sourcing, selling and distributing its wares. It also owns online brands including longstanding retailers like Debenhams, Warehouse and Karen Millen as well as its own boohoo range.

The economics of a business that sells many of its clothes at low prices can be challenging. But although it fell to a loss last year, in the prior 12 months, boohoo made a post-tax profit of £93m on sales of £1.7bn. That shows the business can be profitable and indeed it had been for many years until its recent loss.

Even though it fell into the red last year, annual sales growth was 14%. In its most recent trading update in June, revenue fell 8% in the first quarter. But boohoo maintained its guidance for the full year of revenue growth in the low single digits. I expect further sales growth in future.

My take on the boohoo share price

I see boohoo as a company that has significant strengths but it currently going through challenging times in its end market.

That may last several years, but as a believer in long-term investing, I have been happy to add boohoo shares to my portfolio this year in the hope of strong future performance.

The current market capitalisation of £517m is less than six times those 2021 earnings. The business may take time to recover, but I see the current boohoo share price as a steal for my portfolio.