The global pandemic affected many sectors of the economy as lockdowns forced people to stay at home. Online retailers suffered from the social restrictions that caused people to stop buying clothes.
Since then, the stocks of most US retailers have recovered, and some have even hit new highs. For example, year-to-date (YTD) is up more than 36%.
Meanwhile, across the Atlantic, the following is how the stocks of various retailers have fared year-to-date (YTD):
ASOS (LON 🙂 ( OTC 🙂 : Increased 2% YTD;
Boohoo (LON 🙂 (OTC :): 9% lower on YTD;
Burberry (LON 🙂 (OTC :): up 16% YTD;
JD Sports Fashion (LON 🙂 (NASDAQ :): up 2% YTD
Next (LON 🙂 (OTC :): up 12% year on year.
So today we're taking a look at the online fashion retailer Boohoo to discuss whether the stock deserves to be on the investor's watchlist.
According to statistics from the UK Office for National Statistics:
"volumes recovered further in March 2021, up 5.4% compared to the previous month … Non-food stores were the largest positive contributor to monthly growth in March 2021 sales volumes, aided by strong increases of 17.5% and 13.4% respectively in clothing and other non-food stores. Food stores reported a monthly growth of 2.5% in March 2021. "
The number of people who have received a first dose of COVID-19 vaccination in the UK is nearly 36 million, which is more than half of the population. About half of the 36 million have also had their second dose. Finally, the number of new confirmed cases daily is less than 2,300.
As restrictions gradually ease, many retailers are becoming more optimistic about the coming summer months. The pent-up demand to visit stores in person could potentially put further pressure on e-commerce retailers like Boohoo. With that information now, let's see if BOOH stocks can fare better in the near future.
Boohoo
Manchester-based Boohoo began trading in 2014 at an opening price of 70 pence. Over the past decade it has become a widely recognized name within the UK fashion market. The international offices have expanded to the US, France and Australia. On May 13, BOOH shares closed at 310.1p. Its market capitalization is £ 3.92 billion (or $ 5.5 billion).
Last year, the group encountered supply chain problems. In July 2020, headlines from local newspapers about the terms of employment at some of its UK-based suppliers put stocks under pressure. It has been claimed that many workers were paid less than the legal minimum wage. BOOH's stock at the time was around 200 pence. But since then, shares are up about 50%.
In early May, Boohoo was released for the year ending February 28th. Sales were £ 1.745 billion (or $ 2.45 billion), up 41% year-on-year (yoy). Potential investors may be interested to know that the group's international sales now represent 46% of total sales, versus 45%. Profit before tax also increased 35% to £ 124.7 million (or $ 175.2).
CEO John Lyttle commented:
“ FY21 was a year of significant investment for the group as we built a platform for the future, and I am very pleased to report a strong financial performance. Our established businesses have continued to grow in all areas as we gain market share with our compelling consumer proposition. "
Management sounded optimistic as it expects full year sales growth of 25%. Analysts were generally satisfied with the numbers. However, the stock price presents a different and rather choppy picture. The expected price / earnings ratio and price / earnings ratio of the BOOH stock of 26.60 and 2.21 indicate an overloaded valuation level.
Bottom Line
We wouldn't be buyers of BOOH stock yet. In-store competition could easily take a bite out of online sales in the coming months, putting inventory under pressure. A post-lockdown decline for online businesses can be expected. So a possible drop below 300p, especially towards the 280p level, would improve the risk / reward profile.
Investors who would like to consider adding retailers, including e-commerce companies, to their portfolios should also consider an exchange-traded fund. Examples include:
Amplify International Online Retail ETF (NYSE :): 16% lower on YTD;
ProShares Long Online / Short Stores ETF (NYSE :): down 17.5% YTD;
SPDR® S&P Retail ETF (NYSE :): up 37% YTD;
VanEck Vectors Retail ETF (NYSE :): up 40.5% year on year.
