Is Boohoo a good turnaround stock to invest in?
Boohoo (LON: BOO) share price continued consolidating this week as investors focused on the company’s turnaround strategy. The shares were trading at 57.72p on Friday, close to the year-to-date high of 58.06p. It has risen by over 61% from the lowest level this year.
Boohoo’s growth concerns
Boohoo has faced numerous concerns in the past few years. The most important issue is that the company’s growth has slowed dramatically. For example, Boohoo’s revenue grew by 14% in 2022 to 1.98 billion.
While this was a strong growth rate, it paled to the company’s historical standard. In all, its sales growth in 2018 was 97% followed by 48% in 2019 and 44% in 2020 and 41% in 2021. Therefore, there is a clear downward trend in the company’s performance.
This trend is mostly because of the rising competition in the industry, with consumers buying from companies like Shein and Asos. Other parts of the company are not doing well either. Its net cash has dwindled from over 276 million pounds in 2021 to just 1 million pounds. Adjusted margin has dropped to 6.3% as returns increased.
Therefore, Boohoo stock has dropped as investors focus on these trends and change how they value the company. For a long time, Boohoo was being valued as a growth company. With its growth slowing, investors are now valuing it as a value stock.
Still, as I wrote in this article, Boohoo seems like a good turnaround stock to invest in. For one, data compiled by SimilarWeb shows that the company’s website traffic is still strong this year. The number of visitors rose by 0.36% in February to over 16.8 million. It has jumped from being the 11th popular fashion and apparel company in the UK to the 6th.
Further, as I wrote earlier, UK’s inflation expectation has dropped to the lowest level in months. Therefore, this trend could help boost the company’s performance.
Boohoo share price forecast
BOO chart by TradingView
In January, I recommended that investors should buy Boohoo shares and placed a target of 55p. This view was accurate as the stock rose to 56p.
The daily chart shows that the BOO stock price has been in a slow bullish trend in the past few days. In this period, the stock is sitting slightly below the important resistance level at 56.28p, the highest point on November 15. It has formed an ascending channel that is shown in black. This price is along the lower side of this channel.
Also, the stock is slightly above the 25-day and 50-day exponential moving averages (EMA) while the MACD is above the neutral point. Therefore, the stock will likely have a bullish breakout as buyers target the key resistance point at 70p in the near term.
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