Why I believe the Boohoo share price is too cheap to ignore

Compass pointing towards 'best price'
Compass pointing towards 'best price'

At first glance, the suggestion that fast fashion online retail giant boohoo.com(LSE: BOO) is a cheap stock looks absurd, especially when compared to other companies in the sector in which it operates.

Nevertheless, relative to the share price highs reached back in September (and following a near 40% fall before today), boohoo now looks a far more attractive proposition. Factor in today's full-year numbers and its ambitious growth strategy and I continue to be bullish on the disruptive Manchester-based business's prospects over the long term.

"Exceptional performance"

In the 12 months to the end of February, revenue soared 97% to just under £580m, with growth seen "across all geographies".

Having now gained 6.4m active customers, the biggest contributor to sales understandably remains the main boohoo brand. Here, revenue rose a solid 32% to £374.1m.

That said, the recent performance of the company's other brands is even more encouraging.

Thanks to its strategy of using high profile celebrities in its marketing campaigns, PrettyLittleThing contributed £181.3m in revenue -- a rise of 228%. Taking into account this "exceptional performance" and the fact that active customers climbed 128% to 3m over the year, today's announcement that the retailer will move into its own warehouse in the first half of FY19 isn't all that surprising.

Having grown its product range to 5,000 lines in the year since it was acquired, Nasty Gal also brought in £24.4m -- exceeding the company's revenue estimates for the first year.

Despite an expected fall in margin (to 52.8% from 54.6%) and "a backdrop of difficult trading in the UK", gross profit still rose 90% to £306.4m. Adjusted pre-tax profit also jumped 60% to £51m.

Looking to the future, the AIM superstar stated that there had been a "strong start" to trading in the new financial year and that group revenue growth was likely to be somewhere in the region of 35-40%. With the extension to its distribution centre now built, fit-out "on schedule", and everything due for completion by "early 2019", it really does feel like this company is only just getting started.

One for the long term

Taking into account today's results, the 15% rise in the price of boohoo's stock in early trading this morning feels justified.

While some may begrudge the short-term impact of increased investment, joint CEOs Mahmud Kamani's and Carol Kane's strategy looks perfectly sound, particularly if it will allow the company to achieve sales growth "of at least 25% whilst maintaining a 10% EBITDA margin" over the medium term, as predicted in today's statement.

Aside from this, I'm optimisic on boohoo's chances of replicating the success of PrettyYoungThing at Nasty Gal, especially given that the latter is still relatively unknown outside of the US compared to boohoo's other brands. The fact that industry peer ASOS acts as a third party seller also means that its smaller peer can piggyback on the £5bn-cap's international growth story.

As a further incentive, boohoo's balance sheet still looks incredibly robust. Taking into account the £133m net cash position at the end of the reporting period, I wouldn't be surprised if the company considered adding more brands to its portfolio over the next few years.

The incredible share price momentum seen between 2016 and 2017 may not be repeated but, for those prepared to look beyond the initially-lofty-looking valuation, I remain convinced that boohoo still warrants serious consideration among long-term, growth-focused investors.

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Paul Summers owns shares in boohoo.com. The Motley Fool UK has recommended boohoo.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.