Why I’d buy Boohoo after its share price decline

A model wearing Boohoo's Pretty Little Thing products

The online shopping surge has turbocharged investor interest in many UK retail shares. But the Boohoo Group (LSE: BOO) share price hasn’t failed to balloon despite the e-commerce boom. It’s down 15% on a 12-month basis.

City analysts think Boohoo’s earnings will rise 20% and 26% in the next two fiscal years (to February 2022 and 2023 respectively). This leaves the UK e-commerce share trading on a forward price-to-earnings (P/E) ratio of 25 times. Is Boohoo’s share price decent value at current prices? And should I go dip buying the company’s shares?

Why I’d buy following Boohoos share price woes

It’s important to remember that Boohoo’s share price has still risen an impressive 170% over the past five years. And there are good reasons to expect it to resume its upward path before too long. These include:

  • E-commerce should keep growing strongly. Investor appetite for Boohoo has dulled as non-essential retail has re-opened and bricks-and-mortar retailers grab business back from online rivals. It’d be a mistake to think the e-tail party’s over though, as industry forecasts suggest strong and sustained growth. So e-commerce specialists like this remain in great shape to keep growing profits.
  • Big investment for future growth. I’m encouraged by Boohoo’s huge spending plans to make the most of this opportunity too. A month ago, it announced plans to recruit another 5,000 workers over the next five years and invest heavily in IT. This follows the addition of a fourth warehouse in the spring as it acquired a new processing facility in Northamptonshire.
  • Its market-leading brands. Boohoo’s also spent big to snap up some of the UK’s best-loved fashion labels. Brands such as Debenhams, Karen Millen and Oasis have been salvaged over the past year and added to its already-packed portfolio which includes PrettyLittleThing and Nasty Gal.

A great growth stock

There’s no such thing as a ‘dead cert’ when it comes to share investing of course. And there are a number of reasons why Boohoo’s share price could struggle over the long term. One is the intense competitive landscape, an environment which is toughening quickly as more and more retailers invest in e-commerce. Margins at fashion retailers are notoriously thin and Boohoo could strain to make a profit as the competition heats up.

There’s also a possibility that the popularity of ‘fast fashion’ will nosedive. Consumer awareness over the environmental and social impact of cheap clothes production is steadily growing. In fact, Boohoo is currently overhauling its supply chain amid revelations of poor working practices at its suppliers.

All that being said, I think Boohoo’s share price fall represents an attractive buying opportunity. The retailer has a lot of hard work ahead to deliver strong profits growth and justify its premium rating.

But I’m encouraged by the company’s ambitious growth plans and the steps it’s taking to address supply chain faults through its ‘Action for Change’ improvement programme. I think this could be one of the best UK retail stock for me to buy right now.

The post Why I’d buy Boohoo after its share price decline appeared first on The Motley Fool UK.

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Royston Wild 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.

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