Boohoo is under pressure recently as costs rise. The most recent annual accounts show a loss along with increased debts. The long term outlook looks uncertain

Overview

Boohoo Group PLC (LON: BOO) is a British online fashion retailer. The group was formed in 2006 in Manchester’s textile district and aims to market on-trend fashion brands to both a UK and international customer base. Around half of the goods sold are designed and sourced in the UK, and shipped out from distribution centres in the north of England and the company has recently surpassed total sales of £1bn.

Financials

With the rise in importance of ESG (Environment, Social, and Governance), the fast-fashion industry has had a massive hit and Boohoo’s stock price is no different, seeing a 75% drop from May 2021. Financially, the stock also faces major challenges, with the February 2022 announcement that the firm actually took a loss after tax of £4m. In 2021, they made a profit of £93.4m. This is despite revenue rising from £1.7bn to £1.9bn. The pandemic and increases in return rates have been blamed for this staggering drop, exposing the firm's instability. Looking at the balance sheet Boohoo remains okay, however, cash on hand has dropped to £101.3m from £276m the previous year. Total assets have increased to £998.4m from £775.9m, primarily because property assets have risen sharply and inventories have risen also. Liabilities have also increased from £303m to £534m with a steady increase in all debt-related finance, especially in interest-bearing loans (£100m added in interest).

Technicals

Whilst long-term forecasts look uncertain, the enormous descent of the stock’s share value presents some short-run bullish outlooks, with the current channel formed on the 1H chart presenting an opportunity to enter. With the stock bouncing off of the 66p support region from 2 months ago, investors will be looking to reach a plateau around the 90p mark and put an end to its recent descent. While the short term could provide a bounce the long term picture remains bleak, support sits at 0.63p and a break below here could take back to 2015 levels between 50-30p. Towards the upside, a significant resistance now sits at £1.00, A clear break above here could see the stock move to £1.26. Above here more resistance sits at £1.59 and then £2.00, but it could be years before these higher levels can be considered.

Summary

There is an argument to be made that BOO is undervalued and in a stable post-COVID economy, would thrive once more; despite Panmure Gordon slashing its forecast for BOO to 120p earlier this month. With stock price stability desperately needed to reassure investors, 2022 could be a crucial year in testing the resilience of the stock and the fast-fashion industry as a whole.