The Boohoo share price has collapsed by 80%! Time to buy?

Boohoo example photo - clothes on hanger

Originally Published by The Money Cog

The Boohoo (LSE:BOO) share price is down over 82% in the past year. And in 2022 alone, the stock has collapsed by over 54%. Just like many other companies, the Covid-19 pandemic has had a huge hit on Boohoo’s business which once controlled a large chunk of the online fast fashion market share. But now that the world has recovered from the pandemic, could this be the right time to buy the Boohoo shares for my portfolio at a massive discount?

Why did the Boohoo share price plummet?

Generally, a company’s performance affects its share price over time. And recently, the Boohoo Group has had some real struggles. As I’ve already said, Covid-19 decimated this business. More specifically, it resulted in slowing international revenue growth, extended delivery times, and with less reason to go out, demand for new clothes fell off a cliff.

Needless to say, this didn’t exactly help the bottom line. And profitability was further disrupted by a gross increase in outbound carriage expenses and elevated shipping costs. The latter was triggered by a shortage of shipping containers and a lack of air freight capacity.

Another contributing factor to the decline of Boohoo’s share price comes from management’s capital allocation. Despite the disruptions to operations, the balance sheet remained strong with a net cash position of £1.3m with a cash flow of £10.3m. However, the business also began heavily re-investing in itself. £32m was spent revamping its IT systems, which led to an extension to its revolving credit facility that already stood at £100m.

The group also acquired two new distribution centres in the UK – an investment to upgrade its capacity as an online fashion retailer. Most of these expenses are designed to improve operational efficiency in the long run. But in the short-term, it’s had quite a negative impact which investors have found tough to swallow.

Can the Boohoo share price bounce back?

The market loves companies that show strong fundamentals and grow over time. And in my experience, this combination can lead to a soaring stock price.

In my opinion, Boohoo Group has put in place various strategies that will positively impact the company. The firm is improving the durability and quality of its product while expanding its compliance testing with Boohoo lab. That certainly sets the stage to serve a larger number of customers.

The fast fashion retailer also intends to upgrade the Debenhams technology platform. And it also plans to go live with a new automation solution in its Sheffield distribution centre. And has recently announced plans to open a new distribution centre in the US to boost its clothing offerings and availability to customers.

Meanwhile, management has established new supply chains to source raw materials from near-shore markets. The intention is to bypass the long-haul shipping challenges.

These strategies have already started yielding positive results. The UK sales have improved month-on-month in the period and return to net sales growth in May 2022. Assuming this upward trajectory can be maintained, the financial strength of this business should be capable of increasing. In other words, the Boohoo share price might soon be trading at a higher price and on track for an impressive recovery. At least, that’s what I think.

Final thoughts on the Boohoo share price

The Boohoo Group is making seemingly great progress in restoring its financial strength to its pre-pandemic levels. Nonetheless, inflationary pressures still put the Boohoo share price in check as well as the stock market in general.

With an uncertain consumer spending environment ahead, I won’t be putting any money into this stock today and keeping it on my watchlist. I believe there are better investment opportunities on the London Stock Exchange for my portfolio elsewhere.

Original post

The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.

Written by The Money Cog

Founded in 2020, The Money Cog is a stock market research group publishing news and analysis to help investors make better investment decisions. The site provides in-depth evaluations of businesses as well as commentary on the latest developments within the British and American financial markets.

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