Fast fashion favourite Boohoo (LSE:BOO) is recovering from a recent scandal, its share price is still in flux and big names appear to be distancing themselves. Does this spell trouble ahead? Or is it simply going through price cyclicality that matches the turbulence facing the economy? There are many downtrodden stocks in the UK financial markets. So I wonder, is this stock a contender for the best shares to buy now?
Best buy or wishful thinking?
In case you missed it, the scandal hit early in the summer and involved factories and warehouses in Leicester that Boohoo used in its supply chain. The factories in question were reported to have poor health and safety records, and were caught paying some staff less than the minimum wage. Boohoo appointed a top lawyer to look into the allegations and distanced itself from the factories.
But just this week the company announced its auditor PwC is resigning, which turns out to be due to concerns for its reputation. It then transpired that the other four top tier UK audit firms (Deloitte, Grant Thornton, KPMG and BDO) weren’t interested in taking up the position either. Boohoo’s share price collapsed an unexpected 20% on the news. In the aftermath, its directors have been buying up shares, helping the price to recover, while simultaneously boosting their stakes. So, with a recent price crash and the scandal now yesterday’s news, could Boohoo actually be considered among the best shares to buy now? Or is that wishful thinking?
The folly of fashion
In the current economic climate, I find it hard to believe the demand for fast fashion will continue. If people are going out much less, then surely the need for the latest clothing should drop. But I could easily be wrong. In a switched-on world, young people increasingly want to look their best in every social media shot, and that includes a regular rotation of fashionable outfits. But will consumers be able to afford it?
Source: Boohoo Group/Coast
The Boohoo share price is only down 11% year-to-date, considering all that’s happened, that doesn’t seem too bad. The AIM traded firm has a P/E of 48, which makes it look expensive. It doesn’t offer a dividend, and earnings per share are 5p.
Throughout the year, the Boohoo share price has behaved erratically, which has been par for the course for many UK stocks. From a high of £4.15 in July, it’s now 36% lower at £2.62. But when taking a long-term view of investing, the intermittent fluctuations shouldn’t be of too much concern. What matters is if it can go the distance. Boohoo has been a darling of the AIM index for the past few years, but I’m not so confident of its future.
There’s also the question of ethics and sustainability. The pressure is on all businesses to make a difference, but fast fashion is one of the worst for damaging the planet. To survive, they’re going to have to adapt and make some sweeping changes. I’m not sure Boohoo is up to the task, and for all those reasons, I’m avoiding the stock. And as for the best shares to buy now, I prefer sustainable investments.
The post Is Boohoo among the best shares I could buy now? appeared first on The Motley Fool UK.
Kirsteen 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.
Motley Fool UK 2020