Will the Boohoo share price smash the Next price by 2020?

Coworkers standing near a wall
Coworkers standing near a wall

Every time I look at Boohoo Group(LSE: BOO), I can’t help wondering if I’m really missing something good.

And I’ll tell you what’s good — the company itself. Looking at how it’s carved itself a sizeable niche in the online fashion business, observing earlier players like ASOS and avoiding the same hurdles, I can even thing of Boohoo as a possibly great company.

As Warren Buffet says: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” So I’m not looking for a rock-bottom bargain price when I weigh up Boohoo as a possible investment.

But, by the same token, there’s always a price that’s too high, no matter how good a company — and I’d never buy even the most wonderful company in the world if it’s too expensive.

Advantages

Boohoo (along with sector peer ASOS) does have some significant advantages. Its supply chain should be cost effective, and the lack of high-rent high street stores also aids its competitiveness. And for me, the sheer convenience factor looks like a big plus. While I buy very few (and only ever very cheap) clothes myself, I can see the big attraction of having things brought to your door to try on in the comfort of your own home.

But then I look at Next(LSE: NXT), which seems to be a model for how best to handle a high street fashion crisis. While Marks & Spencer‘s buyers have struggled for years trying to predict each season’s must-have fashion items, but seem to keep missing the boat, Next’s experts just have it nailed, year after year.

And though Next’s profits have been hit during the slowdown, it’s only been marginal damage and the company has maintained footfall levels that are the envy of many of its competitors.

But having said that, Royston Wild has pointed out that even Next is feeling the pinch, as its most recent quarterly update showed an 8% fall in retail sales. Next is very much on the ball with online sales, generally. But though the quarter did bring in a rise of 12.7%, that’s actually a bit of a slowdown in growth — and total full-price sales barely moved, with just a 2% rise.

But it is growth, even if low, is a rare commodity on the high street right now.

Earnings too

Next is now anticipating a 5% rise in EPS for the full year, which I think is impressive in the current climate. It would put the shares on a forward P/E of a little under 12, but does that provide enough of a safety margin to cover any further hardship ahead?

With ordinary dividends going strong at around 3%, I still see Next as a great company at a good price. But right now, I think there are better bargains out there, and I can safely leave Next until at least this time next year.

And Boohoo? Despite my growing admiration for it as a company, I still get very twitchy over what looks like a classic growth share price bubble.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo group. 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.

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