Does Boohoo.com plc justify its valuation of 100 times earnings?

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Boohoo.com

Investors who missed out on online fashion retailer Boohoo.com(LSE: BOO) will be crying their eyes out, as the share price is up almost 400% in the past three years, and an incredible 300% in the last 12 months alone. The question is whether you should buy today as Boohoo will have to maintain its breakneck expansion to justify its giddy valuation of around 100 times earnings.

Sitting pretty

Management is working hard to build on its position as a fashion e-commerce leader and this morning's trading update for the three months to 31 May 2017 shows a blistering 106% increase in total year-on-year revenues to £120.1m, up 98% at constant currency rates from last year's £58.2m.

Boohoo itself accounted for £86.45m of this at an impressive growth rate of 44%. The rest came from recent acquisitions PrettyLittleThing, which added £30.7m of revenues, up 305% in a year, and Nasty Gal, which contributed another £2.9m. Like-for-like revenue growth is a snazzy 78%, while the balance sheet has been strengthened with £74m of net cash, up from £61m in 2016.

Nasty but nice

Gross margins slipped slightly from 56% to 54.2% due to planned investments in the customer proposition, but remain comfortable. Boohoo now boasts 5.2m active customers, up a swanky 24% over the year. PrettyLittleThing adds another 1.6m, up 146%.

This morning Boohoo also confirmed successful fundraising of £50m alongside a placing of 36,570,632 existing shares at 220p per share. It needs the money to build an automated super-site 600,000 square foot warehouse giving the company more than £2bn of net sales capacity, to underpin its rapid growth. That's on top of the estimated £1bn of net sales set to be provided by its Burnley site, which currently has 996,000 square feet of storage with plans for another 900,000 square feet. 

Build, baby, build

Building those warehouses will not be cheap, with land acquisition and construction costs totalling around £150m over the three years to 2020. Capital expenditure is set to nearly double from £34m set out in previous guidance to £63m this year. Spending on the super-site will be around £75m in 2019 and another £49m in 2020. Management says this will be funded by the £50m equity placing, with the group's healthy cash generation also chipping in.

Boohoo has delivered on its growth strategy with style, and investors clearly approve of today's figures, with the share price up 6.68% to 235.75p in early trading. This follows a polished set of full-year figures in April detailing a doubling in profits. With this morning's figures added-on, it's clear the firm is showing no signs of a slowdown.

Boohoo to you

Boohoo's earnings per share (EPS) growth was 48% in the year to 29 February 2016, followed by an even more dashing 97% in 2017. The company now has a market cap of £2.65bn so we probably cannot expect a repeat of those impressive numbers, but forecast EPS growth of 23% then 26% should keep most people happy. That should successively trim the company's valuation to 80.9 times earnings then 67.7 times over the next couple of years. Clearly, this is still expensive and I do not expect the shares to rise another 300% in the next 12 months. However, the investment case remains strong, so dry your eyes.

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Harvey Jones has no position in any shares mentioned. 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.