Boohoo share price recovery starts, business model remains strong

By

Sandra Halliday

Published
Jul 10, 2020

Boohoo may have seen its market value plunging this week after a Sunday Times report last weekend linked it to poor working conditions in Leicester factories, but its recovery has already begun.

After billions had been wiped off its market value, the company’s swift action to launch an independent investigation and ensure its supply chain is operating legally saw the shares beginning a rapid rise on Thursday.

They bounced back from a low of less than £2 each at one point to close up almost 30% at £2.90. And on Friday morning, they continued their assent above £3 each. It means the group’s total market capitalisation is back up to £3.76 billion at the time of writing.

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The rise comes as investors have realised that the firm’s fundamentals remain strong and as two influential financial groups signalled their belief in the company.

Both Goldman Sachs and HSBC said they’re keeping Boohoo shares rated ‘buy’. Even with the former cutting what it thinks is a fair price for the shares to 345p, that’s still well above where it sits at the moment. And HSBC has kept its 500p target, suggesting it believes the firm should be able to regain its value of just a few weeks ago.

It was good news after a raft of bad headlines had gone so far as to question the entire business model on which Boohoo operates and suggested that post-pandemic, fast fashion was no longer the cash cow it had once been.

But the analysts at the two banks still see a huge number of consumers who want affordable fast fashion and they also think that other websites pulling Boohoo products from their virtual shelves will have limited impact given that most of its sales are via its own sites.