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Boohoo shares just popped to a new all-time high. What’s the best move now?

Edward Sheldon, CFA
Chart displaying growth

AIM-listed Boohoo Group (LSE: BOO) – which owns a number of fashion brands including Boohoo, Pretty Little Thing, Nasty Gal, and MissPap – is a stock that I have been bullish on for a while now.

For example, I covered the stock on 26 August when it was trading at 228p, and I stated that there was “plenty of potential for further gains”, despite the fact it was already up 40% in 2019. More recently, on 2 October, with the stock at 270p, I said that “looking at the growth story, I believe that there could be more upside on the cards.”

So, given my bullish stance, I’m not surprised to see that Boohoo’s share price has surged upwards in the last few weeks and broken out to new all-time highs recently. To my mind, it was only a matter of time until the stock popped higher, given the company’s prolific growth.

Can Boohoo shares keep rising from here? I believe they can. Here’s why.

Blue-sky territory

For starters, with the stock now in ‘blue-sky territory’, there’s no overhead resistance to hold it back.

You see, when a stock is trading below a previous high (as Boohoo was for a while), you’ll always have disgruntled shareholders who are sitting on unrealised losses and are looking to sell out when the stock rises just to break-even (this is classic behavioural finance). This kind of behaviour creates a drag on upwards share price momentum.

Yet once that overhead resistance has gone, there’s nothing to stop the stock rocketing higher. I think that’s what we’re seeing right now with Boohoo. It’s also worth pointing out that Boohoo shares spent around two years consolidating past gains between mid-2017 and mid-2019, while earnings continued to rise. This will have built up a fair bit of pressure.

Broker price targets

Next, it’s worth noting that a number of brokers have price targets for Boohoo that are higher than the current share price. For example, Goldman Sachs, which initiated coverage of the stock in late October, has a price target of 330p for the stock. Meanwhile, Peel Hunt and Jefferies have price targets of 350p and 325p respectively. So, brokers expect the stock to keep rising.

Analyst upgrades

In addition, analysts have been upgrading their earnings forecasts for Boohoo in recent months. According to Stockopedia, over the last three months, the consensus earnings per share (EPS) forecast for the year to February 2020 has risen from 4.98p to 5.27p. This is a positive for Boohoo’s share price as upgrades and downgrades are a key driver of share price movements.

Earnings growth

Finally, looking at the company’s popularity on social media, I’m expecting another strong set of results to come out next year. Given that the group generated adjusted diluted EPS of 2.91p in the first half of its financial year, I think there’s a good chance the company will beat the full-year consensus estimate of 5.27p.

Overall, I remain quite bullish on Boohoo. Yes, the valuation is high (the forward-looking P/E is nearly 60), but this is a company that is growing at an extraordinary rate so it deserves a premium valuation. If you own the shares, as I do, I’d hold onto them. The trend is your friend. 

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Edward Sheldon owns shares in Boohoo Group. 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 2019