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Can the Boohoo share price finally recover post half-year earnings?

Fundamental and technical outlook on the Boohoo share price ahead of Tuesday’s half-year earnings.

Boohoo Source: Bloomberg

The Boohoo share price remains in the doldrums

Boohoo's recent earnings report did not provide the bounce that investors were hoping for. The company, like its larger competitor ASOS, has been facing a range of challenges, including supply chain issues, rising costs, increased product returns, and the emergence of strong competitors such as Shein. These factors have made Boohoo and ASOS appear outdated in comparison.

Boohoo has been taking steps to cut costs, such as reducing its stock and increasing automation. However, its international offering is not particularly impressive, and with the return of in-store shopping, it is unlikely to experience the same level of success it had in 2020.

Sentiment towards Boohoo's stock remains negative, with 10 out of 21 analysts recommending a 'hold' and 6 recommending a 'sell'. Furthermore, there have been concerns about poor working conditions at Boohoo's supplier factories in Pakistan, with the country's caretaker prime minister urging the company to address these issues.

Investors and analysts are interested in hearing about Boohoo's US warehouse launch and any comments management may have regarding the growing stake held by Mike Ashley's Frasers Group. Frasers Group has increased its stake in Boohoo from below 8% to over 10% in recent months and may still add to it or even make an offer for the entire company. Consolidation in the market and opportunistic buyers could thus support Boohoo's shares.

There are a few reasons for optimism. Firstly, Boohoo has stated that it expects to return to profitable growth in the second half of its financial year. If the company's interim results on October 3 confirm this, it could attract traders. Additionally, as the cost-of-living crisis eases and discretionary spending rebounds, there may be an eventual earnings surprise. However, rising unemployment levels could dampen these prospects.

One should not forget, however, that Boohoo remains one of the most shorted stocks on the market, indicating that a significant number of hedge fund traders believe its shares will continue to decline.

The absence of dividends also doesn’t make the stock attractive to buyers at the moment.

Technical analysis on Boohoo share price ahead of Tuesday’s half-year results

Boohoo’s share price, down around 14% year-to-date, has now slipped through its 32.65 pence December low and drops towards its September 2022 low at 30p. If a weekly chart close below the 30p mark were to occur, the Boohoo share price might fall to levels last traded in September 2015.

Boohoo Monthly Chart

Boohoo Monthly Chart Source: TradingView
Boohoo Monthly Chart Source: TradingView

Even though the Boohoo share price has been little changed of late, the fact that it has mainly stayed below its June low at 31.86p shows that sellers continue to exert downward pressure.

This will be the case while the Boohoo share price stays below its last significant reaction high – the last candlestick which has a high, higher than the one to its left and right on the daily chart – which can be seen at the mid-September high at 34.87p, approximately 10% above current levels (as of 02/10/2023).

Boohoo Daily Chart

Boohoo Daily chart Source: TradingView
Boohoo Daily chart Source: TradingView

Any attempt of a rally above the 34.87p high would encounter the April-to-October downtrend line at 35.50p which may well cap, if reached at all that is. Strong resistance above it can be spotted between the May and early June lows at 37.26 to 37.33p.

Analysts recommendations and IG sentiment

Fundamental analysts are rating Boohoo as a ‘hold’ with Refinitiv data showing 2 strong buy, 3 buy, 10 hold and 6 sells - with the mean of estimates suggesting a long-term price target of 47.26 pence for the share, roughly 49% above the share’s current price (as of 02/10/2023).

Boohoo analysts Source: Refinitiv
Boohoo analysts Source: Refinitiv

IG sentiment data shows that 98% of clients with open positions on the share (as of 2 October 2023) expect the price to rise over the near term, while only 2% of clients expect the price to fall whereas trading activity on Monday, this week and month shows 76% of buys. This number needs to be taken with a pinch of salt, though, as today is the first trading day of the month of October.

IG Boohoo sentiment Source: IG
IG Boohoo sentiment Source: IG

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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