Is Boohoo’s stock price a bargain or a value trap?

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

Is Boohoo a good buy?

Boohoo is a leading fashion company with 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 operations had revenue of over £545 million, while its US operations brought in £177 million.

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There are several reasons why Boohoo’s stock price has fallen over the past few months. First, the company has seen the cost of its operations increase in recent months. The cost of doing business, including transportation and energy, continued to soar. It has also affected other UK retailers like Tesco and Ocado.

Second, the surge in inflation led to a sharp decline in total sales. The most recent interim results showed the company’s revenue fell 10% to £882m. It had grossed over £976million in the previous half year.

Rising costs led to a sharp decline in profitability. Adjusted EBITDA increased from £85.1m to over £35.5m. These results show that the number of active customers increased by 19.1 million in the first half while the number of orders fell by 10% to 27.6 million.

Third, Boohoo’s stock price also crashed due to increasing competition from Shein and H&M. Shein, the popular Chinese company, is now valued at over $100 billion.

Boohoo Stock Price Prediction

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The weekly chart shows that BOO stock price has been in a strong downtrend over the past few months. As it fell, it broke below the important support level at 140.2p, which was the lowest level in March 2020.

The stock 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 also formed a hammer pattern.

Therefore, the stock is likely to resume its uptrend as buyers target the key resistance at 50p. A move below the support at 32p will invalidate the bullish view.

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