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Here’s what I’m doing about Boohoo shares

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·3-min read
Risk reward ratio / risk management concept
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Boohoo (LSE: BOO) shares can be volatile. But last week, the fashion company released its full-year results. I was not surprised by the stellar numbers, especially as it has emerged as a pandemic winner. But the stock price tells a different story.

For now, I’ll continue to monitor Boohoo shares. I still have concerns over the company’s ethics and supply-chain issues. I do not think these problems have disappeared and are likely to continue to overhang the stock.

But I reckon the full-year numbers are worth analysing. So here are my thoughts.

The results

Boohoo saw a surge in sales last year. Revenue increased by 41% to £1.7bn. Profit before tax also jumped by 35% to £125m. These are impressive figures and the growth was phenomenal.

As I previously mentioned, I’m not astonished by this performance. Boohoo operates solely online and hence has been shielded from lockdown restrictions. Also, it has managed to successfully adapt its products to the desire for comfy clothes to wear at home and gym gear during the pandemic.

The outlook

The board remains bullish for the next year. It expects to deliver full-year revenue growth of 25%. If this is achieved, I’d still be impressed at a performance in high double-digits.

But I guess the pandemic sales surge will have to end at some point. I don’t expect it to carry on forever. This could hinder Boohoo shares. Even management has highlighted that “trading in the first few weeks of the financial year has been encouraging, however, the economic outlook remains uncertain”.

And the company is “experiencing significantly elevated levels of carriage and freight costs”. This is expected to continue in the next financial year. My concern is that it may eat away at profit margins.

I think investors need to be cautious with Boohoo shares, especially as economies are starting to ease lockdown restrictions. I expect the company will be facing more competition from other store-based fast fashion retailers such as Primark that have now reopened their shops.

After a year stuck indoors, most customers are likely to socialise outdoors and visit shops. I know I’d rather venture outside than look at a computer screen.

My concerns

That said, I still expect it to do well. But the question I ask myself is, if the company is delivering fantastic results, why is this not reflected in Boohoo shares?

Since the beginning of the year, the stock is down 6% and over the past 12 months the share price has decreased 13%. Well, I think there are worries over ethical, corporate governance and supply chain issues. I reckon the company will continue to face scrutiny over these problems.

Boohoo has made attempts to calm investors’ nerves by reviewing its supplier list, and issuing a major sustainability strategy. But I can’t help but wonder what else is going to come out of the woodwork.

If it can sort out these problems once and for all, I reckon there is significant upside for Boohoo shares. But the firm is not in that position yet. Any flare-up of these ongoing concerns could put strain on its global expansion plans.

For now, I’m holding fire on buying Boohoo shares. But as a long-term investor, I’ll be watching the stock like a hawk.

The post Here’s what I’m doing about Boohoo shares appeared first on The Motley Fool UK.

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Nadia Yaqub 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

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