Boohoo has laid the demons to rest reporting a year of strong growth and a bullish forecast for the coming year. With the share price up significantly over the last twelve months, is this now all in the price?

Revenue grew 40% to £195m, ahead of expectations. Revenue was up 38% in the UK, 35% in Europe (despite a weak Euro), and 63% in RoW. PBT kept pace with revenue rising 42% to £15.6m. ~£60m of cash is still sitting on the balance sheet.

Boohoo has been a favourite of mine for a while now. I tipped it the day after the profit warning and the share price has roughly doubled in that time. Under half of the share price growth since then can be attributed to earnings growth, just over half to multiple expansion. With shares now trading at 34x PBT, further expansion in the multiple is unlikely so any future price target should concentrate on the organic growth story. Management forecast 25% revenue growth for the coming year, this should be the starting point for any share price forecast.

As I see it, there are two main risks to this scenario. First, and this is the risk of investing in any company with a high multiple, Boohoo may run out of room to grow.

Comparisons are made with Asos, a business with substantially higher sales, but Boohoo has a completely different business model as it only sells own-brand clothes. Asos, therefore, isn’t a good comparator and Boohoo’s market may be much smaller. Boohoo can expand into new markets but, and this applies particularly to online retail, success in the UK doesn’t translate into success outside the UK. Management are exploring wholesale opportunities, this is lower-risk but will dilute the company’s huge margins.

Second, management could slip up. With the advantage of hindsight, we can now see that the profit warning and all the marketing problems of last year were self-inflicted. Today’s results suggest Boohoo has moved past these problems but management are a real wild card. Marketing is much improved but just doesn’t seem polished, relative to peers. Management’s pledge, again, to maintain margins raises more questions than it answers.

Whilst I am going to maintain my bullish stance on Boohoo, I think some caution is in order. Last year’s performance isn’t going to be repeated, the earnings multiple won’t expand further. Boohoo is rated as a premium company but this is well-deserved. Management…

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