Is Boohoo share price a no-brainer bargain or a value trap?

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Boohoo (LON: BOO) share price has been in a freefall in the past few years as concerns about the company continued. The stock has fallen by almost 70% this year and by more than 91% from the highest level on record. As such, the market cap has crashed from over £4 billion to over £477 million.

Is Boohoo a good buy?

Boohoo is a leading fashion company that has a strong market share in the UK and some European countries. It also has a growing market share in the United States. In the first half of the year, the company’s UK business had over £545 million in revenue while its US business brought in £177 million.

There are several reasons why the Boohoo share price has plummeted in the past few months. First, the company has seen the cost of doing business rise in the past few months. The cost of doing business, including transport and energy has continued soaring. This has also affected other UK retailers like Tesco and Ocado.

Second, the soaring inflation has led to a sharp decline in total sales. The most recent interim results showed that the company’s revenue dropped by 10% to £882 million. It had made over £976 million in the previous half-year period.

The rising costs led to a sharp decline in profitability. The adjusted EBITDA dropped from £85.1 million to over £35.5 million. These results showed that the number of active customers rose by 19.1 million in the first half of the year while the number of orders dropped by 10% to 27.6 million. 

Third, Boohoo share price has also crashed because of the rising competition from the likes of Shein and H&M. Shein, the popular Chinese company, is now valued at over $100 billion.

Boohoo share price forecast

The weekly chart shows that the BOO share price has been in a strong bearish trend in the past few months. As it dropped, it moved below the important support level at 140.2p, which was the lowest level in March 2020.

The stock has crashed below all moving averages. A closer look shows that the Relative Strength Index (RSI) has formed a bullish divergence pattern. In technical analysis, this pattern is usually a bullish sign. It has also formed a hammer pattern.

Therefore, there is a likelihood that the stock will resume the bullish trend as buyers target the key resistance at 50p. A move below the support at 32p will invalidate the bullish view.

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