The Boohoo (LSE:BOO) share price took quite a tumble last week following its latest earnings report. The stock dropped as much as 15%, continuing its downward trajectory. As a result, its 12-month performance is now an unpleasant -40% return. But has the market overacted? And if so, should I be considering this business for my portfolio? Let’s take a look.
An encouraging interim report
Since the start of 2021, the Boohoo share price has been falling. It seems there was a rising level of uncertainty surrounding its ability to retain its online sales growth now that physical stores have reopened. But looking at its latest interim report, these fears were unfounded. Because group sales were up 73% over the last six months compared to a year ago.
After digesting its acquisition of Debenhams earlier this year, the firm has relaunched four new brands and made drastic improvements to its logistics infrastructure. The end result is a significant expansion of its addressable market size across the UK and US.
Needless to say, this is good news for the business. So why on earth did the Boohoo share price take a nosedive?
The tanking share price
Revenues may have hit record highs. But earnings weren’t so impressive. In fact, adjusted profits before tax dropped by 20% due to £26m worth of pandemic-related disruptions to its operations. That’s obviously disappointing, especially since management expects these disruptions to continue throughout the second half of 2021.
As a result, the firm has lowered its guidance for underlying profit margins for the year to be between 9% and 9.5% instead of 9.5% to 10%. And to makes matters slightly worse, capital expenditures for the year are also expected to be £25m higher than initially anticipated.
The last time I looked at Boohoo, I concluded that the share price was simply too high. And that the slightest bit of bad news could trigger a sell-off. That’s exactly what’s just happened. So is now the time to jump in?
Time to buy?
Seeing profits decline is not a pleasant sight. However, the reasons are Covid-19 disruptions. With the vaccine rollout making good progress, the pandemic is slowly coming to an end. And therefore, the impact on margins is likely to be only temporary. At least that’s what I think.
These latest sales figures demonstrate the firm’s ability to continue growing revenue even in a post-pandemic environment. And with rigorous investment being made into improving its operational efficiency and order capacity, plus the new brands it has acquired, this growth looks set to continue over the long term.
With that in mind, the recent fall in the Boohoo share price looks like a buying opportunity, in my opinion. So, I’m considering it as a potential addition to my portfolio.
Zaven Boyrazian 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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