The boohoo share price (LON:BOO) jumped 8.6% on Thursday after it was announced that Mike Ashley’s Fraser Group had upped its shareholding to 9.1%. It seems that Ashley’s Fraser Group has capitalised on the depressed boohoo share price, and continues to pick the stock up at a five-year low. It seems a lifetime ago that this fast-fashion stock was trading at over £4 a share.
Earlier this year, boohoo unveiled a plan to boost its market capitalisation seven-fold over the next five years. At a £5bn market capitalisation — the company’s target — the boohoo share price would be c.£3.95, implying a massive 1,064% increase on its current price. So, here’s why investors in boohoo shares should look more closely:
- boohoo outperformed expectations in its full-year results, but still registered a pre-tax loss of £91m;
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Economic indicators are improving, with wage growth now above inflation and consumer confidence recovering;
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The company retains a net cash position of £6m.
Despite falling revenue, profit, and margins, boohoo’s full-year earnings report provided some cause for optimism. The fast-fashion firm managed to outperform its peers and expectations despite registering a pre-tax loss of £91m. Although margins fell by 190bps, boohoo still outperformed its peers including ASOS, which highlighted a 700bps decrease. This subsequently saw the boohoo share price pop 7% on its earnings day.
More encouragingly, the group’s bloated inventories declined by 36%, reflecting nearshoring efforts that have helped manage supply chain lead times and free cash flow. In fact, free cash flow came in positive at £30m for the year, a huge positive compared to ASOS, which registered a disappointing -£263m. This may also explain why the boohoo share price has held up better than the ASOS share price this year.
But perhaps most importantly, boohoo finished the year with a net cash position of £6m. This was significantly better than the £60m of net debt analysts had projected. Taking the tremendous improvement into account, the investment thesis for boohoo shares has turned positive.