On Friday, the Boohoo (LSE: BOO) share price jumped over 13%. This came after a sharp drop the day before due to the release of its Q3 results. The Friday rise was good news for investors in the short term. However, over the past year, the Boohoo share price has severely underperformed, dropping 60%. In addition to this, today the shares have sunk around 4%. With the shares falling so much over this period, is now a good time for me to buy? Let’s take a closer look.
Boohoo results
After the initial release of the results on 16 December, Boohoo shares plummeted over 25%. This was due to a reduction in the firm’s EBITDA and net sales outlook. However, the next day, the shares shot back up. I think this is because investors realised the results weren’t as bad as they seemed.
For the three months to 30 November 2021, gross sales rose by over a quarter. These sales also rose 58% and 102% compared to FY21 and FY20, respectively. These positive numbers have primarily been due to robust demand for products in the UK market. In addition to this, the business was able to largely increase its market share during the pandemic. Being an online-only retailer, customers flocked to buy Boohoo products as physical stores stayed closed.
I think this could play to Boohoo’s strength in the next few months too. With the recent news of the Omicron variant, the UK government is considering tightening restrictions. If this goes as far as another lockdown, it could help boost Boohoo’s sales yet again. I would also expect this to help the Boohoo share price keep climbing higher.
However, in the Q3 results, CEO John Lyttle highlighted the “disruption due to the pandemic” that was hindering growth in international markets. Although growth in the UK seems encouraging, Boohoo may struggle if it cannot boost its international demand. If growth does stall, I would expect the Boohoo share price to tumble further.
Share price concerns
The company still faces other challenges too. Boohoo has been in the spotlight continuously over the past year with multiple news stories denting its corporate reputation.
For example, a factory in Leicester that Boohoo was supplied by was reportedly paying workers as little as £3.50 an hour. In addition to this, the firm has been embroiled in a lengthy US lawsuit regarding fake advertising.
Both of these factors are also behind the disappointing Boohoo share price performance over the past year. Although the firm is making moves towards becoming more transparent and open, it can take substantial amounts of time to mend a damaged reputation. This could deter potential investors for years to come.
Another concern I have for the Boohoo share price is its value. Even after falling so heavily throughout the last few months, the price-to-earnings ratio is still very high at around 26. This seems expensive to me, even when considering the good results.
The verdict
For me, the Boohoo share price doesn’t look all that appealing. I think the results issued by the firm were solid, but many investors are worried about the ongoing effects the pandemic will have on the firm. In addition to this, trading at 23 times earnings, the share price isn’t exactly cheap. Therefore, I won’t be adding Boohoo shares to my portfolio any time soon.
Is this little-known company the next ‘Monster’ IPO?
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Click here to see how you can get a copy of this report for yourself today
Dylan Hood 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.
