Boohoo share price has collapsed. Is it a good contrarian buy?
- Boohoo share price has fallen by over 86% from its all-time high.
- T. Rowe Price sold a huge chunk of its shares in Boohoo.
- A contrarian case can be made about buying the dip.
Boohoo (LON: BOO) share price is languishing near its year-to-date low as concerns about the company’s growth continued. The stock was trading at 62.20 pence on Wednesday, which was about 86% below the all-time high. The sell-off accelerated on Monday when one of its biggest shareholders started selling the stock.
Boohoo stock under pressure
Boohoo is a leading UK e-commerce company that focuses on the fast-fashion industry. The firm operates a platform where people can buy fresh designs at a significantly reduced cost. It has operations in the UK, US, and other European countries.
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Boohoo’s business has come under a lot of pressure in the past few months as concerns about its business growth continue. With inflation rising in its key markets, the firm has recently reported weak results and forward guidance.
At the same time, Boohoo is facing stiff competition from companies like Shein, which source their products in Asia. Shein was valued at over $100 billion in its most recent fundraising.
Boohoo also faced a major public relations nightmare after it was unveiled that it was mistreating its workers in Leicester in 2020. The firm has been solving the crisis since then. And now, the company is being investigated by UK’s CMA for its “green” claims.
Boohoo share price dropped on Monday after T. Rowe Price, an American company, said that it had sold a large portion of its investment in the firm. The fund manager sold 5% of its 10% stake in the company. This decision came a few months after Jupiter Capital Management reduced its stake to 4.5%.
Still, a contrarian case can be made about Boohoo. For one, the company’s valuation has dropped to about 786 million pounds, making it relatively undervalued. It is also a good takeover company now that foreign investors are having an appetite for UK companies. Finally, Boohoo is a good turnaround stock.
Boohoo share price forecast
The daily chart shows that the BOO share price has been in a strong downward trend in the past few months. In this period, the stock has remained slightly below the 25-day and 50-day moving averages. It has also formed a small descending triangle pattern that is shown in green. The MACD has formed a bullish divergence pattern.
Therefore, the outlook for the stock is neutral. A move above the upper side of the descending trendline will signal that bulls have prevailed, which will see it rise to about 100p.