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Forget Boohoo! I’d prefer to buy this growth stock in July

Kirsteen Mackay
A stock price graph showing growth over time, possibly in FTSE 100

The star of the AIM financial index, Boohoo (LSE:BOO) is a growth stock that made spectacular progress in recent years. It thrived on surging online sales during lockdown but is now reeling from accusations of exploitation and poor working conditions. Its share price is sliding, and negative headlines are everywhere. I think it will struggle to recover and prefer a less ethically questionable growth stock.

Developing a social conscience

This morning ASOS, Next and Zalando have each dropped Boohoo from their websites in response to the damning Sunday Times report. Nothing has been proven, but the allegation is enough for these big brands to want to distance themselves. ASOS is no stranger to this sort of allegation having been accused of supply chain wrongdoings too.

In the past, accusations like this have caused a stir but quickly been forgotten in the minds of consumers and sales have recovered. This time may be different. The world is in disarray, coronavirus is stressing the political and social divide, and tolerance is wearing thin. Approaching a recession means reining-in frivolous spending. Climate change is not going away. Investors are looking to distance themselves from unsustainable companies and the risks they bring. Many retailers are already operating on a knife-edge as lockdowns and reduced footfall have brought sales to a screaming halt. For Boohoo to bounce back in this economic climate will not be easy.

The Boohoo share price has collapsed by 44% this week. Despite this, it has a price-to-earnings ratio of 48, which I think means it remains overvalued. I would not want to risk buying shares in an overpriced stock with such a dark cloud hanging over its future.

A growth stock in online education

By contrast, Digital education specialist Learning Technologies Group (LSE:LTG) is perfectly poised to take advantage of another lockdown-linked trend, the global shift to online learning. The pandemic has forced many educators to teach from an online environment, and it is quickly becoming the norm.  Corporations are investing in education to retain staff, increase productivity and streamline their businesses.

Despite falling 26% since its high in January, the Learning Technologies share price is up 15% since the March stock market crash. Learning Technologies has both corporate and government clients, and it has ambitions to grow and expand its business.

It is actively looking out for acquisition opportunities in response to the economic downturn. It raised £82m in a share placing in May, which it plans to use to make acquisitions in the next 9-12 months. This should hasten its growth and increase its market share. This follows its $32m acquisition of Blackboard’s Open LMS business, a software-as-a-service platform that brings recurring revenue to Learning Technologies.

The future economic backdrop is uncertain, so the group faces challenges. There is a risk that new contracts will be harder to come by and existing clients may have money worries of their own. It deferred its final dividend and delayed bonuses for directors to save money and protect against this eventuality.

Nevertheless, the shift to online education puts the company in a perfect position to benefit and if it continues to make complementary acquisitions, it could reap the rewards for many years to come. Like the YouGov share price I wrote about yesterday, I think Learning Technologies looks an ambitious but exciting growth stock worth buying.

The post Forget Boohoo! I’d prefer to buy this growth stock in July appeared first on The Motley Fool UK.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group and Learning Technologies. 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