Shareholders in THG (LSE: THG) have endured a gut-wrenching 16 months. Shares in the Manchester-based e-commerce company, formerly known as The Hut Group, have soared and then plunged. When the THG share price neared 840p in January 2021, its investors must have been in heaven. A year later, they’ve gone through hell. Here’s what went wrong for THG and how I feel about the stock today.
The THG share price soars and then slumps
Founded in 2004 to sell CDs, Manchester-based THG runs nearly 200 websites selling direct to consumers via its custom e-commerce platform. Its three main divisions (health, beauty and nutrition) sell products such as cosmetics and protein shakes. When THG floated in London on 16 September 2020, it priced its shares at 500p, valuing the business at £4.5bn and raising £1.9bn for the company and its owners. At its first-day peak, the THG share price leapt to 658p (+31.6%), before closing at 625p (+25%). This valued the group at £5.6bn.
But THG’s share price kept rising, driven higher partly by belief that THG Ingenuity — its proprietary e-commerce technology — was a hidden gem. Eventually, THG stock hit a record high of 837.8p on 12 January 2021. With the stock up 67.6% since listing, THG’s founder, executive chair and chief executive Matthew Moulding became a paper billionaire. Nice.
Over the next eight months, the share price drifted downwards, closing at 684p on 7 September 2021. Unfortunately, it was brutally downhill from there for THG’s shareholders as the stock plunged repeatedly. In five weeks, the shares lost almost 60% of their value. When I wrote about THG on 14 October, it had collapsed to 281.4p, crashing 57.7% in under five weeks. This followed a disastrous investor presentation on 12 October, when rash remarks by Moulding sent the stock southwards.
THG keeps on falling
On Friday, the THG share price closed at 126.5p, roughly a quarter (25.3%) of its 500p IPO price. This valued the business at just £1.54bn. Also, the stock hit an all-time low of 118.3p on 24 January, before recovering to close at 121.3p. Obviously, this has been a catastrophic 12 months for the group — and partly for the reputation of the London Stock Exchange. Alas, the shares weren’t helped by an uninspiring trading update and profit warning on 18 January. Here’s how this stock has performed over five time periods: One day: -7.1% | Five days: -14.5% | One month: -44.8% | Six months: -78.2% | One year: -82.9%.
So far, nothing has stopped the ongoing decline in the THG share price. But THG’s sales growth is very robust, so it might well grow its way out of its current troubles, despite declining margins. Also, the group has the backing of a major investor: Japanese tech giant SoftBank. SoftBank invested $730m in THG in May at a share price of 596p, giving it an option to buy 19.9% of THG Ingenuity for $1.6bn within 15 months. Conceivably, Softback might bid for the whole group, plus THG has plans to spin off its dominant beauty business in a separate London listing this year.
I don’t own THG shares today, but I wouldn’t buy them at the current price. However, if the share price keeps falling, then I’d be tempted to buy at around £1. After all, boss Matt Moulding might decide to take his baby private again by offering a price premium to current shareholders. And almost anything can happen when formerly high-flying shares are cast into the bargain bin!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
