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boohoo groupIt’s been fascinating to follow the (LSE:BOO) share price over the last few years. Shares of the online retailer have fallen more than 92% from their 2020 highs. Affected by situations such as Brexit, the recovery of post-pandemic brick-and-mortar stores, supply chain issues and increased market uncertainty, the stock certainly They have gone through difficult times.
However, in the last 30 days, the stock is up a healthy 8.5%. Given this renewed momentum, could now be the right time to add it to my portfolio?
Bad performance
At the height of the pandemic, boohoo shares soared to 413p in June 2020. Remaining quite volatile throughout the year, the stock ended 2020 at around 340p.
In 2021, boohoo was plagued by a scandal surrounding the treatment of some workers at companies to which it outsourced production. Additional complications arising from Brexit disrupted supply chains, making matters worse for the fashion retailer. The rise of cheaper competitors such as Shein and Temu has also affected boohoo’s market share.
These factors, combined with a broader market slowdown, have seen boohoo shares drop to just 33p at the time of writing (November 6).
Bad results
Last month, boohoo released its half-year results. Revenue and gross profit figures showed a year-on-year drop of 17% and 16%, respectively. It also stated that it expects revenue to decline between 12% and 17% in 2024, due to a slower-than-expected volume recovery. Based on this, it seemed like investors had little to get excited about.
However, the group reported some positive metrics. These included a 16% reduction in operating costs, a £94m reduction in inventory and higher margins. However, given the poor income figures, I’m not sure they tip the dial in favor of investment.
Light at the end of the tunnel
A great way to spot a good investment is to follow the market movements of veteran and experienced investors. In the case of boohoo, a big name has been accumulating shares. Mike Ashley, chief executive and majority shareholder of Frasers Group, has built up a substantial 15.1% stake in boohoo through his MASH Holdings vehicle.
While this could simply be a play to acquire the brand and its inventory, which wouldn’t necessarily create any value for shareholders, it always gives me some confidence when an industry titan buys.
In addition to this, analysts have indicated that the company expects to increase its profits by 75%. This could provide significant momentum for investors if the predictions come true. That said, boohoo is not expected to be profitable for the next three years.
The verdict
Considering all this, I don’t think Boohoo stock fits my buying criteria. Poor results and fierce competition are two big red flags for me. Although the company has taken some steps to address its key issues, I don’t believe these outweigh the risks. Although the share price has seen a small rally this month, I won’t be buying any time soon.
