Boohoo (LSE: BOO) has frequently topped analysts’ lists of the best growth stocks to buy over the past couple of years. However, the City has started to move away from the fast-fashion retailer over the past year. Its corporate governance challenges, labour relations and rising costs are causing analysts to question its potential.
But I think these criticisms ignore a significant factor in the company’s growth story, namely its relationship with customers. Based on my recent experience using the group’s services, I think this could be a significant mistake.
The customer is always right
The biggest challenge for any retailer, especially ones in the fashion industry, is customer service. Companies need to offer consumers what they want at the right prices and answer any queries or resolve any issues when they emerge.
I have used Boohoo several times over the past couple of months. Each time I have been incredibly impressed with its service. When there has been an issue with an order, the company has been more than happy to offer a resolution. The range of clothes on offer is expansive, and delivery is fast and cheap.
I am also impressed with the quality of the clothes, and the use of recycled materials in some of its products. Compared to Boohoo, other retailers appear worlds behind, in my opinion.
These qualities do not make the company the best growth stock for me to buy now. Nevertheless, this experience is invaluable in helping me make a decision about the enterprise and its outlook.
Growth stock potential
By maintaining a high level of customer service and a wide product range, I think the company can continue to surpass the competition.
Still, it will have to overcome some significant challenges in the years ahead, which could hold back growth. These include rising prices and other inflationary pressures, such as wage costs.
There is also a continuing question mark over the company’s labour practices. It has made a great deal of progress in improving its supply chain over the past two years. However, stories occasionally surface suggesting that some of its suppliers are underpaying their workers.
Until these issues are entirely resolved, I think investors will continue to view the business with a degree of scepticism.
The Boohoo share price looks cheap
Still, I think this is an opportunity for long-term growth investors like myself. Over the long run, I believe the company’s focus on customer service will yield results. This should translate into steady earnings growth.
At the time of writing, shares in the enterprise do not appear to reflect this potential. The stock is currently trading at a forward price-to-earnings (P/E) multiple of just 15, compared to the company’s five-year average of around 50.
Based on these factors, I would be happy to add the growth stock to my portfolio today as a long-term investment.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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