If I’d invested £1,000 in boohoo shares 5 years ago, here’s how much I’d have now!

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I think it’s fair to say that it’s been a wild ride for boohoo (LSE: BOO) for the last half decade. After acquisitions of fast fashion brands Nasty Gal Y prettylittlething in 2017, the FTSE TARGET 100 Stocks maintained a steady upward trajectory until the onset of the pandemic, a period characterized by high volatility and choppy trading action.

The Manchester-based business has since plummeted, hovering around 41 pence today. If you had invested five years ago, how much would you have now?

poor returns

Although it has a track record of profitability, the online retailer has never paid a dividend. This means that my total return would be calculated based on fluctuations in the value of the company’s shares only.

Processing the numbers makes for a grim read. Boohoo’s stock price has crashed by almost 84% in the last five years. Consequently, my initial investment of £1,000 would have been reduced to a paltry sum of around £164 today.

financial concerns

I can find plenty of reasons to be bearish even after those huge losses. For starters, I’m not sure the brand has really recovered from damaging allegations of poor labor practices in its UK supply chain. This despite the fact that the company ended its relations with several manufacturers.

Source: boohoo 2022 Annual Report

Additionally, the FY22 results contained a number of revelations across a variety of metrics that concern me. At £8m, adjusted pre-tax profit was still positive, but just barely. For context, the previous year the company generated £125m in pre-tax profit. The group’s net cash holdings were also reduced by £275m to a paltry £1.3m today.

To me, this is not a good position for boohoo to be in as it struggles to retain customers amid spiraling inflation and a possible recession.

A brighter future?

However, despite my concerns that boohoo’s stock could represent a value trap, I see some merit in the bullish argument.

There were glimmers of hope in the company’s results. It was encouraging to see a 14% increase in revenue to £1.98 billion. So was the announcement that the retailer now has 20 million active customers, a 43% increase from 2020.

The company also recently partnered with Kourtney Kardashian, who will act as a sustainability ambassador. This is an exciting development that can enhance the image of the company, which is a crucial asset in the world of fashion.

Having said that, the initial reception was mixed. Kardashian and boohoo received criticism for allegedly ‘greenwashing’. This is likely to be a hot topic for shareholders going forward as the company navigates an ongoing Competition and Markets Authority (CMA) investigation alongside the competitor. ASOS regarding potentially misleading sustainability claims.

Should I buy boohoo stock today?

I’m glad I resisted the urge to invest in boohoo until now. To say that returns have been disappointing would be an understatement.

Until recent financial results, I would have predicted that the business was likely resilient enough to weather the macroeconomic storms currently raging in the stock market. However, now I’m not so sure.

There are some considerable risks facing boohoo stock. Also, I don’t like the absence of dividends. I think there are better UK stocks to buy today and I wouldn’t invest in boohoo today.

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