Boohoo share price has been in a strong freefall in 2022 as concerns about the company’s future remained. The stock tumbled by more than 70% in 2022, making it its worst year on record. This decline was in sync with other British e-commerce companies like THG and Asos. Made.com went bankrupt while companies like Wise and Deliveroo tanked.
There are several reasons why Boohoo imploded in 2022. First, inflation in the UK and other countries it does business surged after Russia’s invasion of Ukraine. High inflation leads to a cut in discretionary spending like clothes as people focus on staples like food. As a result, the company’s business struggled in 2022 as demand waned. Inflation also ate into its profitability during the year.
Second, Boohoo struggled as the number of returns climbed to the highest level on record. As an e-commerce company, Boohoo allows people to return clothes and accessories. In most cases, returns tend to lead to higher costs and lower profitability.
Third, Boohoo share price dropped in sync with other global e-commerce companies. Amazon, the biggest e-commerce company in the world, saw its stock crash by more than 50% in 2022. Other e-commerce players like Etsy, Jumia, eBay, Stitch Fix, Groupon, and Alibaba also crashed. Historically, e-commerce stocks tend to have a close correlation with each other.
Further, competition in the industry rose, which affected the company’s growth. Others like H&M and Asos were forced to adjust their prices to compete with upstarts like Shein. In its most recent funding round, Shein was valued at over $100 billion, which is higher than that of other firms in the industry combined.
Finally, analysts downgraded the stock in 2022. Some of those who downgraded their expectations were Barclays, Berenberg, Deutsche Bank, Shore Capital, and JP Morgan.
As I have written before, Boohoo seems like a bargain at the current prices. Therefore, I think that brave contrarian individuals can buy the stock. First, inflation is set to decline in 2023, which will likely spur more spending.
Second, the supply chain challenges that affected the company in 2022 are easing. Shipping costs have come down dramatically as global demand wanes. Also, transportation costs in the UK and other markets are falling. As I wrote in my crude oil price prediction, I suspect that oil prices will decline in 2023 as the commodity supercycle fades.
Further, Boohoo is still a well-known brand with millions of customers every year. As such, with its stock being a bargain, we can’t rule out a situation where the company is acquired in 2023.
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