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I was right about the Boohoo share price last October. Here’s my plan for 2021

Jonathan Smith
·3-min read
Cute dog in funny colourful jester cap.
Cute dog in funny colourful jester cap.

Last October, I wrote a piece about the Boohoo (LSE:BOO) share price. In it, I wrote about how I was bullish on the outlook, despite the short-term fall at that point. Within my portfolio, it was one of my best performing stocks for 2020. But now we’re in a new year, and some interesting news stories are out regarding the company again. This time it’s with regards to acquisitions. After having read into it myself, here’s my plan for the Boohoo share price for the coming year.

Making purchases

Boohoo announced yesterday the acquisition of Debenhams for £55m. Debenhams has been a struggling retailer for several years, but the store closures due to Covid-19 pushed it into administration in December. As this news is hot of the press, it’s very interesting to think through.

Boohoo predominately targets a younger audience, so this acquisition would mean expansion into a more mature target audience. I would see this as positive diversification. Having a broader demographic could allow Boohoo to ride out any slumps in demand from a particular segment, and bolster the Boohoo share price in the longer term.

Another reason this acquisition could help the share price is due to the financials behind it. I’d imagine the selling price is very favourable, in order to save Debenhams. If Boohoo just asset-stripped the business, it could likely find good value beyond the price it paid. Access to the customer base is another intangible asset worth a large amount for a rival. After all, Debenhams had approximately 300m UK website views a month, putting it in the top 10 of retail website traffic sites.

Of course, the purchase could have complications, and end up being a bad investment to take on.

My thoughts on the Boohoo share price for 2021

The purchase gives me an indication of management’s thinking at Boohoo. They seem to want to pursue the acquisition strategy that has already seen it buy brands Karen Millen and Oasis. This has helped to accelerate growth. Revenue growth since 2015 has ranged from 27% per year up to 97%. For 2020, revenue growth has been revised higher, now expected to be between 36% and 38%.

As well as trying to continue inorganic growth, Boohoo could also benefit from geographical expansion. For example, take its US growth for the 10 months to the end of 2020. Revenue was up 67% over the previous year. Even with trading into Europe, the business expects just a “small cost headwind” from increased administration and transport costs.

As I see it, the main risk for the Boohoo share price is from reputational damage. This was seen last year, when bad publicity regarding poor working conditions and pay resulted in a share price slump. If we get more stories out this year about a lack of controls and safety, then the share price could nose dive again.

Overall, I’m looking to buy back into Boohoo this year. The business is continuing on the growth strategy it has successfully executed in previous years. It’ll get harder to achieve the same growth rates in the long run, but for the moment I’m not too worried.

The post I was right about the Boohoo share price last October. Here’s my plan for 2021 appeared first on The Motley Fool UK.

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jonathansmith1 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 2021