I think Boohoo (LSE: BOO) shares are currently too cheap to pass up, and with this in mind, I am considering buying the stock for my portfolio today.
Why are investors avoiding Boohoo shares?
Whenever I stumble across a company that looks cheap, the first thing I try to do is understand why investors are avoiding the business in the first place.
With Boohoo, it is clear why the market has been avoiding the company over the past year. Even though the business has been able to capitalise on the surging demand for e-commerce retail during the pandemic, it has suffered some significant reputational issues.
The most important of these is the supply chain issues at its factories in Leicester. Its suppliers have been accused of underpaying workers. These acquisitions have caused a backlash against the group.
There have also been some concerns about corporate governance standards and a court case in the US over the firm’s pricing practices.
However, the company has been working to resolve these issues. It commissioned a full review of its supply chain in Leicester and removed any suppliers that it believes are underpaying workers. It has also invested significant sums in improving the quality and transparency of its supply chain.
Unfortunately, it looks as if this cloud will continue to hang over the company for some time. The global supply chain crisis is having an impact on the company. That is another short-term headwind for the group, although it is not alone.
With its UK-focused supply chain, Boohoo may actually be better-positioned than many of its peers to get around these issues.
International expansion
At the same time, the company is making substantial progress in its expansion overseas. Many UK corporations have struggled to crack the US market. Despite its legal troubles, Boohoo is marching ahead and rapidly grabbing market share in this region.
And with a balance sheet stuffed full of cash, the company has the financial flexibility to acquire other struggling retailers. It has already used this playbook several times in the past two years to expand its footprint and grab new customers from former competitors.
Put simply, I think Boohoo has encountered some growing pains over the past few years. It is now moving on from these issues. Its current valuation presents an opportunity for me to acquire the stock at a discount to capitalise on this growth.
Even after the corporation’s recent profit warning, I think the stock still has plenty of attractive qualities. Boohoo has carved out a sizeable niche in the fast-fashion market over the past decade, and it is not going away anytime soon. The business is a leader in the e-commerce space, and it has a platform to drive growth in the next few years as the economy rebuilds.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
