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Being an investor in some of the UK’s largest retail companies has not been easy over the last few years. Issues related to Brexit, the pandemic and economic uncertainty have brought down many of the biggest names on the street. But in recent months I’ve had my eye on one in particular, Boohoo Group (LSE:ABOO). So what’s happening to the Boohoo share price?
Some ugly years
Investors in boohoo have had a terrible time in recent years, with the share price falling 86% since 2018. The difficulties and uncertainty during the pandemic were felt in many sectors, but in addition, the supply chains for the sector retail have been chaotic. in the years following Brexit, and the overall cost of goods has skyrocketed. Since the core of the business is based on offering low-cost fashion, this has been a recipe for disaster.
Revenue has decreased by 18% and the number of active clients has fallen by 12%. The rising cost of living has clearly had an impact on consumers globally, but with the company spending heavily on additional warehouses and inventory, along with mounting debt, a change in strategy is needed, and quickly.
How are the finances?
It is evident that most of the low-cost fashion retail companies have had problems lately, with competitors ASOS also struggling in the market. As a result, boohoo has a price-to-sales (P/S) ratio in line with the industry average of 0.2 times. A discounted cash flow (DCF) calculation suggests the company is 22% undervalued at the current share price of £0.30, but this reflects nervous and uncertain investor sentiment.
Despite the uncertain outlook, analysts expect the company to grow earnings by 75% over the next year, well above the industry average of 18%. However, boohoo is not expected to be profitable for the next three years. This will likely worry investors as the high interest rate environment is not likely to improve the company’s debt situation or increase customer activity.
A ray of hope?
When a well-known company is clearly in trouble, there is always the possibility of further investment. Mike Ashley, the well-known majority shareholder in Frasers Group, has been gradually buying up 15.1% of boohoo shares through his stake in MASH, suggesting he could still have potential in the company. However, it is always worth being careful with these types of deals, where buying inventory and acquiring a brand may be the reason for a purchase, rather than believing in the company itself.
I am buying?
With no dividend and financials in decline, it seems to me that Boohoo shares have too many red flags for investors to consider buying at the moment. Investors who are willing to sit through a few more years of stock price uncertainty may be rewarded, but I think there are much better places to put my money to work. For now I will stay away from Boohoo shares.
