UK Markets open in 2 hrs 46 mins
  • NIKKEI 225

    26,424.60
    +127.74 (+0.49%)
     
  • HANG SENG

    26,672.52
    +2.77 (+0.01%)
     
  • CRUDE OIL

    45.92
    +0.21 (+0.46%)
     
  • GOLD FUTURES

    1,809.20
    +3.70 (+0.20%)
     
  • DOW

    29,872.47
    -173.77 (-0.58%)
     
  • BTC-GBP

    13,350.77
    -599.93 (-4.30%)
     
  • CMC Crypto 200

    349.04
    -21.48 (-5.80%)
     
  • ^IXIC

    12,094.40
    +57.62 (+0.48%)
     
  • ^FTAS

    3,607.81
    -25.54 (-0.70%)
     

The Boohoo share price is falling. I see an unexpected buying opportunity

Alan Oscroft
·3-min read
Financial technology concept. Stock market crash.
Financial technology concept. Stock market crash.

The story of the 2020 stock market crash so far has been one of contrasts. Once-dependable stocks slumped to rock-bottom prices, especially anything to do with traditional high street shopping. At the same time, online shopping and home deliveries got a boost. Traditionalist Marks & Spencer crashed. Tesco, somewhere in the middle and straddling both kinds of shopping fell, but more modestly. And online fashion star Boohoo (LSE: BOO) climbed. The Boohoo share price hit record highs in June.

Growth share volatility

Since then, Boohoo has been a bit erratic, falling back and then climbing again. I suspect there’s been some early profit-taking, then possibly a new wave of buyers seeing bargain prices. The Boohoo share price had gone off the boil a bit by the time November arrived. Maybe the new lockdown has dampened people’s thoughts on spending over the forthcoming Christmas shopping season?

But I think all this is missing the point. The coronavirus lockdown has done one good thing. It’s got a lot more people switched on to online shopping. The shift has shown itself strongly at Tesco, for example. And investors have seen the Ocado share price soaring 80% in 2020. And you know what a lot of those trying online shopping for the first time have discovered? They like it. This is surely not a quick change just until we’re back to normal. No, I reckon much of the online shopping boost is permanent. Covid-19 just helped bring it forward.

Boohoo share price fall

But whatever the reason for the price fall, Boohoo is now in negative territory in 2020. Yes, by market close on Wednesday, the Boohoo share price was down 8% year-to-date. And it’s now lost 37% since the June’s high. Six months ago, I’d have laughed at anyone who predicted that. But growth shares can do that, and I’d rate it a style of investing best suited to those with calm nerves and a relaxed disposition.

What I’m asking myself now is whether to buy. I’ve been tempted by Boohoo numerous times over the past few years, when it’s gone through various dips. And every time, I prevaricate for too long, the price launches on its next upwards surge, and I miss another opportunity to get in cheap.

Tempting valuation

Even after the fall, the Boohoo share price indicates a relatively high P/E valuation. We’re looking at a multiple of 33 on forecasts for the year ending February 2021. But continuing growth predictions would drop that to 26 for the following year. That might look like a premium valuation. But for a company with the long-term growth potential I think I see in Boohoo, I’d say it’s way too low a valuation. The temptation is with me again.

Boohoo’s chairman and CFO have been buying shares, and I might join them.

The post The Boohoo share price is falling. I see an unexpected buying opportunity appeared first on The Motley Fool UK.

More reading

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group and Tesco. 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