BooHoo - BOO (Hold)
Fashion isn’t my past time. I am a man of function not form, which means I buy clothes rarely and somehow always get it wrong.
I wanted to look at a slightly different company and I wanted to look into new areas myself. BooHoo is an interesting online clothing retailer for the younger crowd. They are also riding the wave of fast fashion, cheap items with a high margin which isn’t built to last.
From TradingView
While they have faced the typically COVID-19 dip they have made a steady recovery. This has been driven by the fact BooHoo and its other brands (boohoo, boohooMAN, PrettyLittleThing, Nasty Gal, MissPap, Karen Millen, and coast) are all digital e-commerce stores. They have remained open through the lockdown.
On the surface, everything looks highly promising for BooHoo.
From Genuine Impact
The fundamentals are all extremely strong. One of the strongest quality companies, very high momentum, and extremely overpriced. Normally I would find this fairly attractive, but I have BooHoo down as a hold where I’m actively seeking an exit.
The profitability is extremely high, and this is no surprise. a 5.16% profit margin and low operating costs make this a robust business.
The debt is also very low, you’ll see this with a very strong financial strength. Looking at Yahoo we can see the hard numbers behind this, £20.92m of debt versus £245.45m of cash in the bank. Perfect for buying up competitors or building up a war chest for trying times (like right now.)
For all the profits, cash flow, and generally “rich” for BooHoo, they don’t like to pay it out to shareholders. This means as an investment it’s just the share price growth to look forward to.
https://investing.thisismoney.co.uk/fundamentals/BOO
In terms of value, BooHoo is extremely overvalued. It doesn’t matter what metric you are using here, price to sales, price to earnings or even price to book.
The bit I am most interested in is the future projections. BooHoo is a great momentum pick but I feel like there is more to uncover. Why are they building up cash, not paying it out to investors, no innovation other than a focus on new styles cheap and quick, and yet the future revenue and earnings seem strong?
A lot of analysts are on the side of picking up BooHoo, and it seems to hit their revenue and EPS targets are very achievable (plus the uptick in business due to COVID-19 closing down competitors.)
So why am I pessimistic?
Fast fashion is falling out of trend with its core audience. As laws changes and customers become more aware of the impact their purchases have on other lives and communities, then fast fashion will fall to up-cycling and “greenwashed” alternatives.
It also seems like the share price predictions are very low compared to the rest of the market.
With competitors coming back after the lockdown ends, a group made up of similar companies who are repeating the same strategy. The lack of diversity makes me concerned for their future.
In the short term, I’m sure they’ll continue to climb, but as a long term investment, I am not buying more and now considering when to exit.
As with any major decision I asked my girlfriend her view on BooHoo.
They are popular with the female 16-24 market, but it’s not an ethical company. Why and how are the clothes they make so cheap?
At least she’ll support my decision!
Let me know what you think of my write up, or what your view is on BooHoo.