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of Buhu (LSE:BOO) share price hit some glorious highs during the pandemic. Young consumers have made good use of retail therapy to relieve their boredom. But was this the crescendo of fast fashion’s seismic growth story? I feel like it could be.
Boohoo’s share price has fallen by more than half (65%) since the new year. I think fall marks the sunset on the history of fast fashion. I expect companies like Buho to be the sector’s biggest victims in the long run. Yes, I no longer consider Boohoo a growth stock, and I’ll explain why.
Is the party over?
Fast fashion is exactly what it says on the tin. The sector is built on producing cheap, trendy clothes inspired by celebrity culture. Fashion is ‘fast’ because it reaches the consumer at breakneck speed.
However, its ‘fast’ nature is now being challenged. Faster delivery speeds are becoming more expensive. This is because higher freight and container costs are eroding gross margins. Meanwhile, delivery times for the items have been extended.
In fact, I feel that this affects the entire business model. And all the while the customer returns are increasing. These factors are the bane of online retailers. Apparently, they too have become the bane of Boho’s stock price.
Analysts at UBS It seems to align with me regarding the sector’s challenges in the long term. The bank has a revenue forecast of up to 30% for the sector over the next five years.
A long-term view of stock prices
Of course, I could be wrong about the direction of Boho’s stock price. The company has recently been on an acquisition spree. The group is armed with several brands that cater to slightly different customer segments. A different business model would not be a bad move in my eyes.
Reassuringly, the company has a relatively strong balance sheet. What this company needs is financial stability. I’m sure the cost-of-living challenge will significantly reduce spending on fast fashion from young consumers.
However, the most talked about Bhuhu’s upcoming interim results will be his preview this Wednesday. I expect to see the administration strike a cautious tone regarding medium-term prospects.
The temporary results are not highlighted.
More importantly, I believe there is a separate issue weighing on Boho’s stock price. This is related to the ESG malpractice charges against the company that have been lingering for some time. I’m seeing it influence the taste of young consumers. The sarcastic reaction on social media to the group’s appointment of Kourtney Kardashian as its sustainability ambassador doesn’t bode well for me as an investor.
I understand that this is an issue that Bhutu is trying to alleviate. However, the efforts have already landed them in hot water with the authorities regarding greenwashing. ASOS as well as.
Certainly, I see changes in consumer behavior as more powerful than companies reacting to business. I think this coupled with operational challenges will continue to weigh negatively on Boho’s share price.
All in all, I have to conclude that fast fashion stocks have no place in my portfolio for the foreseeable future.