Image source: Getty Images
While I’ve identified a good number of stock market winners in recent years, it’s one that I’ve been wrong about. Buhu (Lessie: Boo) I’m always bullish on the AIM-listed online fashion retailer. However, in the last 12 months, Bhu’s share price has fallen by 85%.
As a stockholder, I’m feeling the pain too. At the start of last year my boohoo shares were worth around £3,500. But today they cost just £420. Oh! So what’s wrong with me here? And most importantly, what is the best course of action for me now?
I got an error with boohoo shares
It’s fair to say there were a lot of issues with Boohoo that I didn’t see coming. For starters, I didn’t expect growth to slow down so quickly after the pandemic.
My view was that the e-commerce industry would continue to expand at a healthy pace after the lockdowns ended and BHU would continue to benefit. However, the growth of e-commerce has slowed down and has had an impact. For the three months to the end of May, the company’s UK sales fell 1 per cent.
I also hadn’t considered the supply chain and cost issues caused by the pandemic. These issues hit not only Booho but all retailers and reduced profits significantly.
Also, I wasn’t expecting the sustainability issues going on here. I thought Bhu would have a better handle on this. However, the issues refuse to go away.
In the end, I thought the power of the brand was stronger. Recently, interest in the company’s products, incl Buhu And Nice little thing, he refused. This is illustrated in the Google Trends chart below (note that 100 represents the highest demand).
Competition from competitors including Chinese e-commerce powerhouse Shein seems to have taken its toll on the brand. All in all, I don’t read the view too badly here (at least in the short term).
what do i do now
It’s hard to be bullish on boohoo shares right now. Productivity has faded and consumers are tightening their belts due to the energy-related cost of living (another issue I wouldn’t have expected a year ago). Therefore, the performance of the company may be low in the near future.
Meanwhile, short sellers are targeting the stock heavily. According to shorttracker.co.uk, Boohoo is currently the most shorted stock in the UK. This means hedge funds expect the stock to continue falling.
Having said that, I can’t believe I have to sell from Bohu now.
As my shares are only worth £420, they are now a very small part of my overall portfolio. So instead of selling, I’d rather hold to see if the company can turn things around. I stick the stocks in the bottom drawer and come back to them in a year or two.
This approach may cause more losses to me. If performance continues to decline or if the company is penalized for sustainability-related issues, the stock could continue its downward trend.
However, I am comfortable with this risk as it can be covered if sales and profits are increasing. It’s worth noting that the stock currently trades at just 12 times forecast earnings for the next financial year. Therefore, if performance starts to improve, the stock could be given a high re-rating.