Motley Fools25 Oct 2021 14:59
Despite these negatives, there are several reasons why I’d buy the growth stock. For example, over the past couple of years, Boohoo has managed to double its market share in both the UK and the US. It also plans to open a new distribution centre in North America in 2023, which should help its American expansion. As such, while profits may have slightly decreased recently, there’s no sign that revenues are also going to decrease. Therefore, I believe that the drop in profits is just a short-term problem.
The valuation of the stock is now far more appealing. Indeed, for the next financial year, it is estimated that the company will have an earnings-per-share of 11.5p. As such, the company has a forward price-to-earnings ratio of 17.4. For a company that is seeing large revenue growth, this is not too expensive at all. Despite this, the company may not reach these estimations, and this could cause a drop in the Boohoo share price.
Even so, this lower valuation does reflect the rising competition in this market, including webstores like Shein and Missguided. This could potentially hit profits over the next few years.
What’s next for the Boohoo share price?
Despite the issues with the company, I feel that the Boohoo share price is now too cheap, and this recent dip offers a good time to buy. Indeed, the company has an extremely large customer base, and despite the reopening of shops, demand remains strong. Therefore, I’m very tempted to buy shares.
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