I lost money as the boohoo (LSE: BOO) share price sank. But at least I got out before the latest crunch.
Shares in boohoo hit a 52-week low in early August. They’re back up a couple of pennies, but we’re still looking at a 30% fall year to date. And the shares are down 87% in the past five years.
There must be light at the end of the tunnel, right? I think there is. And I don’t think it’ll be the oncoming train that the market seems to fear.
Turn it round
I reckon one big thing could set boohoo back on the road to growth. And there’s something else along the way too.
The wheels came off the growth stock story. It all went into reverse, into loss. Revenue’s been falling, and there’s no return to profit on the forecasters’ cards, at least as far out as 2027.
The causes are multiple and one big problem was trying to expand too fast. But I think the company’s doing the right things to get back on track. The key one is to focus on its five core brands. That includes Debenhams, and at FY results time I saw a bit of light on the horizon. The update spoke of its “capital-light, stockless model driving high-margin growth“.
Step 1
The first step to restoring my confidence is to get back to positive free cash flow. The boohoo board believes it can achieve that in the 2024-25 year. August marks the end of the first half, and we should have news sometime in late September.
I want to see improved confidence in achieving that target, though I suspect most might wait until they see the actual cash. We’ve been burned before.
Net debt of £95m on the books at FY time in February is a problem. But it looks like a level that could come down once cash flow’s reversed, as long as it doesn’t balloon too much before then.
Step 2
What we need next is a return to positive earnings per share. And a clear view of boohoo’s management plan to keep it sustainable. It’s been in profit before, but blew it.
I just want to see the board come through on its promise to keep a clear focus.
It should take a while to get back to actual profit. But when it shows up in forecasts, it could be the trigger for a bullish spell. And that’s the key event for me.
The loss per share forecast for 2027’s actually only very small. It might not take much to flip it into the green.
Volatility ahead
This is all speculative, and plenty could go wrong before these things happen. If they happen at all, that is. And the prospect of at least three more years of losses makes me nervous.
I still expect volatility, and the boohoo share price could still fall further. Oh, and the board’s in the middle of some tense debt finance negotiations right now, the outcome of which isn’t assured.
But if it gets through these talks, I think it might soon be time for me to put a little bit back in.
This post was originally published on Motley Fool
