Can I CAN-SLIM? 5 - - buy point?

Wednesday, Sep 06 2017 by

Hi everyone, I hope your investments are doing well. I'm going to write a bit about Boohoo.Com (LON:BOO) today... (I have a long position already in this share) I know a lot has been written about this share on this discussion boards. It attracts a lot of attention / has it / has it not over extended. Is it nothing more than "a jumped up market trader" etc, but, as usual I won't offer any insights into the financials - others on Stockopedia are far better qualified, but I can talk about it in relation to CAN-SLIM...

If you are not familiar with the CAN-SLIM method there is a great overview on the CAN-SLIM-esque screen page, and I really recommend buying Bill O'Neil's book and studying it. I'm still fairly new to this method, so any comments on my interpretations are welcome, in fact requested.

Boohoo.Com (LON:BOO) has been featured in the CANSLIM-Esque screen for as long as I have been doing this blog, with impressive EPS growth, ROE and Relative Strength, covering the C, A and L of the CAN-SLIM acronym. N stands for New - new companies / products or management. It certainly qualifies there. S is supply - compared to many stocks in my portfolio, Boohoo.Com (LON:BOO) is heavily traded, with around 6 million shares / day.  

In summary, in my opinion, very suitable choice for the CAN-SLIM portfolio. One of the more important aspects of the method is choosing buy points correctly. Us CAN-SLIMers have to sit patiently, following shares for weeks, months, often watching significant upwards and downwards movements before we pounce! I think the moment for Boohoo.Com (LON:BOO) was today. 

14 weeks ago, the price peaked around 270p, since then a cup with handle base has potentially formed. I say potentially, because we can only expected to be right 1 in 3 times. Hopefully more often, but 1 in 3 is sufficient. Today it closed over 6% up, pretty much in line with the top of the handle (dotted line). This combined with the huge increase in volume (preceded by a period of low volume and fairly tight closes) could be a positive sign. This will be an "Add" for the portfolio tomorrow, accompanied…

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Boohoo Group PLC, formerly plc, is an online fashion retail group. The Company is based in the United Kingdom and has a presence in the United Kingdom, the United States, Europe and Australia, selling products to almost every country in the world. The Company owns the boohoo, boohooMAN, PrettyLittleThing, Nasty Gal, MissPap and Karen Millen and Coast brands. These brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-30 year old consumers in the United Kingdom and internationally. more »

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21 Posts on this Thread show/hide all

FoolishBen 7th Sep '17 2 of 21

Yes this does look like a textbook CAN-SLIM / Minervini set up. I already hold Boohoo.Com (LON:BOO) in my long term portfolio but going to take another, short term position on open and see where it takes me. Just finished Minervini's second book and have been looking for an opportunity to try his methods. I think BOO is just about big and liquid enough for the strategy to work but obviously one cannot expect much more than a 50% chance of success so I will set the stop loss at 50% of the gain I am looking for.

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Viz 7th Sep '17 3 of 21

I've been watching this too like a hawk. I am already a very happy (and lucky) holder having bought in @ £0.25 a while back. I took back my original investment by topslicing @ £2.50. I went back in on Monday @ £2.28 and there has been a strong rise since then. I'm already considering booking some profit before the trading update later this month.

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vik2001 7th Sep '17 4 of 21

I read somewhere Barclays increased the forecast due to increased traffic to boohoo which they monitored...

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lightningtiger 7th Sep '17 5 of 21

Nice cup and handle pattern which is usually good news so I checked a Fibonarchi retracement which is usually more right than wrong and comes out to a target price of 300p. This was measured from the highest high to the lowest low after that. I too hold a long position in this share and expect good trading coming up to the Christmas season. On the cautious side, this share is currently over valued so a tight stop loss is in place.

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poughtibridge 7th Sep '17 6 of 21

In reply to post #216113

I missed IQE - I lost my nerve a few days after I last wrote, even after I recommended it to a colleague... maybe I need to write about that! It was a really good call from you. I may still jump in but will have to sell something now.
It is a challenge to buy back, but I think the fact you have done shows you are using the method..

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poughtibridge 7th Sep '17 7 of 21

In reply to post #216148

I really need to rea Minervini - which book do you recommend/ Have you read both?

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poughtibridge 7th Sep '17 8 of 21

In reply to post #216228

Viz - £0.25 - you are a stockmarket wizard! Yes the trading update will be critical... a whiff of disappointment and it won't be good. Interesting what Vik and lightningtiger are saying further down the discussion.

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Thunderball 7th Sep '17 9 of 21

A P/E of 73 looks pretty scary now, it's going to get hammered if they deliver anything but stellar updates. Tempting momentum but I think I will hold what I have rather than add, I top sliced At 253p in early June. Great company and prospects though.

Good luck poughtibridge

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poughtibridge 7th Sep '17 10 of 21

In reply to post #216233

That sounds promising - I tried to have a look myself, but didn't want to sign up for A quick look at google search stats and it certainly isn't dropping back. Thanks for the info.

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poughtibridge 7th Sep '17 11 of 21

In reply to post #216413

I haven't used that before - I'll look into fibonarchi retracements. Thanks for bringing it up.

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poughtibridge 7th Sep '17 12 of 21

In reply to post #216523

Yes, it is scary, but they have delivered the goods in the past. I may get a drawback on this one, but I guess that is to be expected some times. I will try to limit any losses with a stop loss, although not sure how much use it will be if it gaps down 20% following less than expected results. Before I started my CANSLIM experiment, I survived this kind of thing by being too lazy to sell, then the price recovering...

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Viz 7th Sep '17 13 of 21

In reply to post #216518

Having looked at my notes it was around £0.22 that I paid - so for me personally I'm happy to hold on even if the trading update doesn't meet expectations. I'm not losing any money having top sliced. I am however slightly worried about position sizing and with this being my largest holding whether I need to be 'smart' and reduce or be brave and see what happens. The fact I've gone back in and topped up answers my own question and demonstrates my faith in BOO. No stop losses setup either - but if BOO rises again over 5% in the next week, I'll pull my top up out for a 15% gain as a 'smart' move. I'm doing a lot of averaging up rather than down this year which is working well for me.

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bestace 7th Sep '17 14 of 21

In reply to post #216543

This post may be completely irrelevant for a CANSLIM approach given that revenue growth isn't part of the acronym. Apologies for hijacking the thread if anyone does think that, however I reckon the markets are more focused on top line growth than EPS at this stage of the company's development, so for what it's worth...

I think trading would have to fall off a cliff edge for results to disappoint, on the top line at least. The company is currently guiding to 60% revenue growth broken down as:

Revenue growth from the boohoo brand is expected to be 25% to 30% year on year. Revenue growth from the PrettyLittleThing brand is expected to be approximately 75% above the 12 month revenue to 28 February 2017 of £55 million. The balance of the growth to around 60% will come from the Nasty Gal brand.

So that's total revenue guidance of around £471m broken down as £361m for Boohoo, £96m for PLT and £14m for NG. The brokers are being a bit more generous and are currently forecasting around £510m revenue which amounts to 73% growth.

However just looking at the Q1 results and the growth run rate where the Boohoo brand was growing at 48% YoY, growth would have to fall to 25% YoY for the rest of the year to hit the upper guidance limit of 30% growth for the year as a whole. That level of growth reversal seems unlikely to me.

Likewise PLT did £30m in Q1 alone so the £96m guidance for the full year is clearly bonkers even before taking into account the fact that PLT's YoY growth was 305% in Q1.

Even with conservative assumptions I can't get to a forecast lower than £525m for the company as a whole which would amount to almost 80% growth and if the YoY growth run rate seen in Q1 continues through the rest of the year, revenue could be as high as £580m which would be a near doubling compared to FY17.

Bottom line is that I think there is still plenty of scope for upgrades through the rest of the year (hopefully starting with the forthcoming interims), with minimal risk of disappointment relative to current guidance and broker forecasts.

The only fly in the ointment is that they issued an upgrade in August last year but declined to do so this year. Is that an indication that growth has tailed off since Q1, or are they just keeping something up their sleeve?

Also, revenue upgrades are obviously no guarantee that the share price will follow - they wouldn't provide much insulation against a broad-based market sell off, for example.

And with so many momentum traders and a lot of hot money involved, it wouldn't surprise me if we get whipsaw volatility on or around results day, regardless of how good the actual results are. For that reason I personally wouldn't be using stop losses here because based on my number-crunching I'm reasonably confident that the interim results  will be good and the outlook positive.

However I completely understand that others will see that potential volatility as precisely the reason to use a stop loss.

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FoolishBen 8th Sep '17 15 of 21

In reply to post #216513

I have read both but would suggested starting with the first and seeing if you like it. He is clearly a William O'Neil disciple as his strategy is very similar and he references IBD a fair bit. If anything I find he simplifies O'Neil's work a little bit and is perhaps slightly easier reading that "How to Make Money in Stock". In the first book he shares both his fundamental and technical requirements whereas in the second he focussed mainly on technicals. The second book is only worth reading if you are really focussed on this style of investing. There is a fair bit of repetition and I'd say it's more an evolution of his first book than anything more. I liked that however as he recommends reading his first book several times but I find that hard to do so reading the second helped to hammer home some of the key principles. The only downside is he is a bit of a fan of motivational speaking and some of the things he comes out with are rather cheesy.

I guess the interesting thing with O'Neil and Minervini is that in many respects their strategy is the exact opposite of someone like Peter Lynch, who was also very successful. I'm of the opinion that you can make money either way and would ideally like to mix in a bit of both, depending on how the market is acting but to do so is very difficult as the prior recommend strict stop losses and the later would be more likely to buy more on a big drop. I'm only in my second year of investing however so at the moment I want to learn everything and then eventually settle on a system that suits my personality and stick with that. At the moment I am leaning more towards O'Neil/Minervini as not sure I am patient enough for value investing.

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poughtibridge 10th Sep '17 16 of 21

In reply to post #216558

Hi Bestace - I don't think you are hijkacking the thread at all - a valuable contribution. Thanks. I think it is useful to have the view of someone who staking the time to analyse the guidance adding a bit of depth to the discussion. And it makes sense!

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Ramridge 11th Sep '17 17 of 21

In reply to post #216558

Hi bestace - excellent analysis of Boohoo.Com (LON:BOO) as usual.
Your focus has been on top line revenue growth and I agree the momentum here is strong and may well give rise to further revenue upgrades.
However as a Minervini momentum investor (BTW Minervini fully acknowledges O'Neil' s profound influence on his thinking) , I look at earnings growth too with a lot of interest.
Here I see a few clouds. The forecast SG&A costs are going up from 131m to 214m in FY18 and capex costs are going up from 31m to 64m also in FY18. These are keeping a lid on earnings performance.
For instance, profit before tax (pbt) growth is expected to come down to 33% from 93%, from FY17 to FY18. Operational margin has as expected taken a hit.
So the question to me is this. If we expect further revenue upgrades, will operational gearing kick in and upgrade eps disproportionately higher? With large fixed costs planned to take effect this and next financial year, I am not sure. I'd like to see the impact of this in the next interim report.

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Howard Marx 11th Sep '17 18 of 21

In reply to post #217248

I think you've answered your own question there Ramridge!

Operational gearing is the result of sales growing faster than fixed costs.

If SG&A costs are growing at 60%+ then operational gearing will be minimal this year for Boohoo.Com (LON:BOO) ie profits will grow in line with sales. I guess that's why the management forecast flat margins for 2017.

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Ramridge 11th Sep '17 19 of 21

In reply to post #217298

OK, I didn't express myself very well. What I meant to say is, I would like to see the fixed cost figures in the interim results to see if they are really only growing in line with revenues or maybe higher.

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bestace 11th Sep '17 20 of 21

In reply to post #217248

Yes I'd agree with much of that ramridge. It's pretty likely that EPS growth will lag top line growth in the short term due to the factors you highlight, although I'd note that SG&A includes distribution costs which are mostly variable (c.22% of revenue) so it's not like a 60% increase in SG&A is due to financial incontinence when it comes to cost control.

The additional capex is also understandable in the context of increasing capacity for future growth plans so views on that will probably come down to differences in investing horizons and belief in their ability to execute the expansion successfully.

Longer term I'm turning more bearish on Boohoo.Com (LON:BOO). I think they may be making a strategic mistake by having a single distribution centre in Burnley. Apart from the increased business continuity risk of having this potential single point of failure, I think the success of Amazon Prime is pushing customers to expect near instant delivery and all round better fulfilment. In the US for example, BOO simply can't provide that level of service when they are dispatching goods from Burnley (despite what they might claim).

So it means poorer customer service (longer delivery timescales) but also higher distribution costs for BOO compared to their competitors who have, or are setting up, multiple fulfilment centres across a range of territories where they trade.

I'm also a bit concerned that BOO don't seem to be as good at generating customer loyalty as some of their peers. That means higher churn, higher customer acquisition costs and lower customer lifetime value, the effects of which can be papered over while they are going through a big growth ramp but those things can't be ignored forever.

There was a telling comment by the FD on one of the earnings calls where he said they don't really focus on customer churn, they are more interested in order frequencies i.e. squeezing more out of their customers rather than retaining customers. I think that could be an error. Their annual report and other communications don't really talk much about customer loyalty which contrasts sharply with comments by Asos like this one (from their last annual report):

We reach out to [our customers] by producing great content, which makes us much more than just a place to shop. By becoming a fashion destination offering a unique customer experience, we turn a sale into a loyal customer, who returns to us frequently.

And this one when talking about their reward scheme (something Boohoo don't run):

From a business perspective, we hope the programme will incentivise customers to shop more often and stay with us longer because they have more of a relationship with us than if they just shopped and didn’t get thanked in return.

I wish Boohoo were making statements like that!

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maffs0 9th Jan '18 21 of 21


I've been out of BooHoo, but bought back in last week. The chart seems to have formed a double bottom with the top of the middle of the W at 213p. It cleared this briefly last week on decent volume. Any strength in the next week or so taking it above 213p might make this an O'Neil style double bottom. 

Trading update is due out on Thursday so I'm just in with a 50% position and may even cut that more tomorrow as Boohoo.Com (LON:BOO) can be very volatile around results time.


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