What’s in store for Boohoo’s share price after record Q4 results?

Boohoo’s [BOO.L] share price reached a record high this week after the company’s Q4 trading report revealed a strong performance and an upgraded sales forecast. With Boohoo stock up by more nearly 10% so far this year, making its market capitalisation higher than Marks and Spencer’s, investors are looking to see if the online fashion retailer can keep delivering stellar results.

The positive share price performance trend is one look that Boohoo hasn’t changed. Its share price was up by close to 90% in 2019, hitting what was then an all-time high of 316.9p on 29 November. The stock has since reached another record and closed at 333.7p on 14 January. Boohoo’s share price is now more than six times higher than its March 2014 IPO price of 50p.

Boohoo’s solid trading looks set to continue in a similar fashion. The company’s trading report issued on 14 January showed a record performance for the final quarter of 2019, leading it to boost its guidance for the financial year to 29 February.

Making a mark

The climb in Boohoo’s share price was largely attributed to its positive guidance. This was driven by a surge in sales, which saw group revenue for the four months to 31 December rise by 44% year-on-year to £473.7m.

Boohoo’s share price puts its current market capitalisation at just under £3.9bn, which is ahead of competitors such as ASOS [ASC.L] and Marks and Spencer Group [MKS.L]. The former, whose share price has been flat since the start of the year, currently has a market capitalisation of £2.74bn.

In what could be seen as a shift in the sector, stalwart Marks and Spencer has so far this year seen its share price fall by almost 14% through 14 January, putting its market capitalisation at £3.58bn. M&S CEO Steve Rowe noted a “challenging trading environment in the lead-up to Christmas” and lower-than-expected online revenue in the store’s clothing and home UK department. Meanwhile, Boohoo’s share price has outshone other UK fashion retailers such as Next [NXT.L], which has seen its share price decline by over 2% through 14 January.

Record performance

Unlike Marks and Spencer, Boohoo noted record performance over the Christmas period. “All brands have performed exceptionally well and delivered strong market share gains,” said CEO John Lyttle.

In particular, Lyttle cited the operating leverage from the company’s established brands as well as the promise and opportunity from newly acquired ones, such as MissPap, Karen Millen and Coast. He said he hoped the new acquisitions would provide opportunities in keeping with the company’s plan to build a multi-brand platform.

As a result, the company adjusted its guidance for the financial year to 29 February. It now expects revenue growth of 40-42%, significantly higher than its previous estimate of 33-38%. It maintains its medium-term guidance to deliver sales growth of 25% per annum.

Boohoo share price vitals, Yahoo Finance, 15 January 2020

What analysts are saying

Hargreaves Lansdown highlighted Boohoo’s “opportunistic approach to acquisitions” that works in its favour. The company’s purely online presence allows it to offer small quantities of a wide variety of stock, making it more agile than competitors, it said. “This ‘test and repeat’ model means Boohoo is ideally placed to keep up with the frantic pace of fast fashion.”

However, there was some cause for caution, as Boohoo’s potential “comes at a price”. Because its share price is currently 49.5 times expected earnings, Hargreaves Lansdown said, Boohoo must have “near-perfect execution”.

“Boohoo’s operating model is well placed to keep up with the frantic pace of today’s fashion, but there are some risks involved with growing at such an advanced pace,” Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said.

“We can’t fault Boohoo’s expansion efforts so far, but continued growth will require new infrastructure in the future, and that brings execution risk. For now, though, the group’s walking a road paved with gold,” she added.

“We can’t fault Boohoo’s expansion efforts so far, but continued growth will require new infrastructure in the future, and that brings execution risk. For now, though, the group’s walking a road paved with gold” - equity analyst at Hargreaves Lansdown, Sophie Lund-Yates

Five out of six analysts polled by the firm rate Boohoo stock as a strong buy, while one rates it as a buy. Similarly, 12 out of 16 analysts polled by MarketWatch rate the stock a buy, while two rate the stock a hold and the other two rate it a sell. The consensus among 20 analysts polled by MarketScreener is buy.