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Thanks for the kind words Pf-78. Think there might be something in card factory. Good business and solid margins pre pandemic.
CR888:
- labour scandal (market priced in consumer demand falling as a result)
- OPEX increasing due to supply chain issues + labour scandal resulting in production being outsourced (transportation costs increasing)
- return rates increasing to pre pandemic levels (exacerbated by supply chain issues)
- Inefficient CapEx (London head office purchased when US distribution center was required)
- Plans for growth hindered by all distribution being fulfilled by UK - hitting margins
- Poor Management (no buybacks / poor communication / bad image around owners)
- Fast Fashion having secular headwinds due to the environment - consumer demand will fall in the long term
- Competitors offer a more compelling offering for the conscious consumer
- Consumer behaviour is shifting towards less spending and saving clothes for longer. This directly contradicts Boohoo's test and repeat model
- Margins being squeezed due to supply chain issues, market is pricing in debt for the future and Boohoo being in a less competitive position for M+A
- Tough competition in the fast fashion sector causing a high marketing to sales %. Market is pricing in that figure increasing in order to facilitate future growth. If supply chain issues persist net income could turn negative.
- Short seller activity due to reasons mentioned above.
IMO the market has priced in the worst case scenario here. The equity is trading at v. low multiples compared to historic levels and I think supply chain issues aren't as bad as feared. I see the price at £1.50 come the summer and if growth can get back to normal levels (20-30%) there is no reason why this won't be back at £3.
TFG, 95p was just a random number. What I'm thinking is that MW have to keep the price low in order to cover their shorts. I got in the same day as Norges and the price went from 98p to 109p in about an hour. Norges have a similar position to the amount of shares MW have to cover. The price is being driven by hedge funds atm, and I wouldn't put it past them to do a massive short attack in the future.
No worries, Pf-78 I enjoy researching companies and I'm happy to help :) I'm currently an economics undergrad, and the sentiment I'm getting from friends in the financial sector is pretty awful at the minute. Investment Banks / Private Equity are panicking about global rate hikes and are looking at ways to deleverage their positions (sounds very similar to 2008). Just my opinion, but I feel that things could get very nasty in the next 18 months. The valuations of growth companies are ridiculous at the moment esp. in the US. I feel the NASDAQ dip we saw was just the beginning. Personally I'm holding Boohoo as my only position at the moment. I hadn't actually planned to invest in Boohoo, but the valuation was too good to turn down. I'm in their demographic and I can assure you, they are going nowhere. The supply chain issues are transitory in nature and once consumer spending restarts in the summer, growth will experience tailwinds. Another factor is reality TV. The world cup is also this year, in the winter. Is that period of six months going to be a surge in sales? I think so. People will go out with COVID easing and I can see growth returning back to the 25-30% levels. That would probably the point I would cut the majority of my position (65%) and take some profits. The rest I'd let ride (5yrs +) and if the fundamentals improved, average up when the market crashes.
*rally and sell for a small profit. This current environment is going to favour those with cash waiting to invest once the market crashes. AO for me isn't a 'great business' and is more a gamble on future patterns of behaviour. I'm looking at Amazon, Alphabet, Mastercard, Visa and Shopify to buy when the market crashes, and IMO they are safer plays than AO.
AO seems like it may be a bit rocky for the next 18 months if I'm being honest. Definitely don't sell, but its one that you may have to forget about for a while.
Personally I wouldn't put any more capital into it. IMO we are heading towards a bad recession. AO operates with thin margins anyway, and I fear that demand may fall off a cliff in the event of companies making cuts / government implementing austerity measures... etc..
You also have supply chain issues with AO. The good thing with BOO is that supply chain issues should start to ease once passenger planes resume flights in the summer. Also BOO has pent up demand from the pandemic, and with festivals / holidays this summer growth should return. AO on the other hand is a bit different. A washing machine is far more costly to transport than a dress.
AO does well when the middle class has lots of disposable income and has experienced tailwinds from the pandemic. Electricals are a luxury, not a necessity. Therefore if we are heading towards a downturn it may turn a bit nasty for the company. I'm unsure what their competitive advantage is either. If I'm buying a expensive electrical I'd like to see it in person before I buy. Also, I'm not sure if prices really matter in this sector. For Boohoo prices matter due to the demographic (teenagers want fashionable and cheap clothes to go out in) but for a middle age consumer the service (returns / warranty) has greater impact compared to saving 10%. After all, if your dishwasher wasn't working you want to be able to call up the supplier and have them send someone out. Brand loyalty is hard to come by in this sector, my parents for example only buy electricals from Curry's / John Lewis. Not because of the price, but because of the service in the past.
In terms of the financials, there's nothing too alarming there. They shouldn't go bankrupt and they seem to have good revenue growth (how much of that is due to pandemic I'm not sure). It all depends on your view of consumer behaviour. For me I can't see some sectors moving online. For most families electrical purchases make up a massive amount of the yearly spend. Why would you not see that in person beforehand? Then again, the younger generation may not mind the e-commerce element. With Web3, what's stopping AO from having a virtual reality shop where you can see the products?
Its not a bad company by any means. If there is a recession brick and mortar retailers will face increasing OPEX costs, pushing down margins, and potentially handing market share to AO. Capex is also quite low, which is good to see. They don't seem like they are diluting you as a shareholder either. Long term they might do ok, however they face lots of competition, what's stopping Amazon doing what they do? I'd feel more comfortable buying from them compared to AO.
Going forward it depends on the price you've paid for AO. If you've bought it at the 100 mark I think you should cut your position at the next r
MW have approximately 2.5% of the short positions atm. I think that at around 12:50 today they covered some more shorts, probably around 0.07% again. I think they realise the game will be up come the March update, and are using their hedge fund contacts to keep the price suppressed while they exit their position. I think we'll see 95p next week, to enable MW to get rid of around 0.5%. This will likely continue until end of Feb imo. I see no reason why this isn't at 150p by the conclusion of the March update.
GLA
I'd agree Dan, Boohoo will do worse in the long term. However, I feel that Boohoo have less severe concerns in the short term. Asos have significant long term debt that will likely be added to with squeezed margins. Both good buys though imo.
You are proving my point here NoFear. You are good at predicting short term trends, but to invest in Cineworld when it has a mountain of debt is mental to me. Why not just invest for the long term into solid companies? It's much lower risk and will save you a lot of stress I imagine too.
You have been right about the short term volatility of this equity NoFear. However I am in this for the long term. I could not care less if this went to 70p as long as the fundamentals are the same. You will get burned trading. May not happen now, but there is always the risk.
Good post ragtrade. On the last earnings call an analyst made a point about air freight / shipping costs remaining at elevated levels even when headwinds ease. Do you see this happening as well?