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If boohoo (LSE: BOO) isn’t the worst UK stock to have owned over the past few years, it’s certainly up there. Or down there, as the case may be.
Since June 2020, the boohoo share price has lost 93% of its value and now trades for 29p! ‘Ouch’ almost doesn’t quite cut it.
However, a couple of notable insiders have been buying the fast fashion stock recently. Should I follow suit? Let’s discuss.
Insiders are bullish
Earlier this month, boohoo co-founder Carol Kane upped her stake in the company, snapping up 320,943 shares at a price of 31p. That purchase cost just under £100k.
Then yesterday (22 January), filings revealed that she’d splashed out another £99k on a further 330,295 shares at 30p each.
Back in December, new CEO Dan Finley bought 294,350 worth of stock. The price for those? Also £99,000.
As legendary Wall Street investor Peter Lynch once observed: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
Clearly then, insiders see value on offer here, and the stock does look cheap on paper trading at just 0.3 times sales.
Why does boohoo now trade for pennies?
Now, I wouldn’t rush out to buy a struggling share just because executives have been doing so. I want to know the reasons why it has fallen so much.
In the case of boohoo, it has faced many challenges. The main ones include weakened consumer demand, high inflation, supply chain scandals, and increasing product returns from customers.
Arguably the biggest problem though has been intense competition from fast fashion giant Shein. Quite simply, it is beating boohoo at its own game, offering much more choice at cheaper prices.
Turnaround potential
In the six months to the end of August, boohoo’s revenue fell 15% year on year to £620m, while the underlying operating loss widened to £18.3m from £4m. It cited “ongoing headwinds” at its youth brands (boohoo, boohooMAN, PrettyLittleThing, and NastyGal).
I find that worrying because these labels — once individually trumpeted but now bundled together as “youth brands” — are supposed to be the growth drivers. Or were. Unfortunately they’re the ones that compete directly with Shein.
The key brand that is performing well is Debenhams, where net revenue jumped 68% in H1. Indeed, this bright performance landed the head of Debenhams, Dan Finley, the CEO job. The hope is that he will work his magic across some of the group’s embattled brands.
In November, boohoo did manage to strengthen its balance sheet by raising £39.3m from shareholders. So a return to top-line growth in FY26 (starting in March) could spark a big turnaround in the share price. That said, analysts don’t currently hold out much hope for this.
Alternatively, perhaps the labels will be sold off to the highest bidder and the group broken up. Those parts might be worth more than the current sum.
Should I invest?
Operating costs are falling, but the company isn’t expected to return to profitability any time soon. And while I’d like to see boohoo stage a comeback, I lack confidence in its mixed bag of brands.
Weighing things up, I think there are less risky growth stocks for my portfolio today.
