Investing 24-11-2022 15:47 14 Views

Is it safe to buy the Boohoo share price dip?

Boohoo (LON: BOO) share price crawled back on Thursday as the company came under scrutiny for its working conditions. The stock rose to a high of 41p, which was higher than this week’s low of 35.93p. Its shares have plunged by over 65% this year and by 91% from its all-time high.

Boohoo faces another crisis

Boohoo is a leading British e-commerce company that operates some of the leading brands in the UK like NastyGal, PrettyLittleThing, Karen Millen, and Coast among others. It is one of the top fast-fashion companies in the UK.

Boohoo share price has plunged by more than 90% from its highest level in 2021. This decline started when reports of the company’s working conditions in Leicester. Since then, the company worked hard to repair its reputation.

Boohoo found itself in a crisis once again this week after an undercover journalist published a damning report about its warehouse operations. The report said that Boohoo warehouse workers were forced to work for long hours with minimal rest. 

Boohoo rejected these claims and pointed to its low turnover rate and higher wages. There is a likelihood that UK regulators will start investigating the company.

Boohoo has been going through a difficult period as inflation surges and as competition with Shein rises. The most recent results showed that the number of active customers in the six months to August rose by just 1% to 19.1 million. The number of orders declined from 30.7 million to 27.6 million while the items per basket dropped to 3.06.

Boohoo saw its group sales drop by 10% to 882 million pounds. Gross profits dropped to 464 million while adjusted EBITDA fell to 35.5 million pounds. 

So, is it safe to buy Boohoo stock? While Boohoo faces significant pressure, contrarians see a possible route to recovery. For example, it is expected to open its American warehouse in 2023 which could help it deliver growth. Further, the company’s stock is highly undervalued and is a likely takeover target.

Boohoo share price forecast

Boohoo chart by TradingView

The daily chart shows that the BOO stock price has been in a strong bearish trend in the past few months. As it dropped, it moved below all moving averages and the descending trendline shown in green. The Relative Strength Index (RSI) has moved below 50.

Therefore, in the short term, the shares will likely continue falling as sellers target the support at 30p. In the long term, however, the stock will likely rebound and retest the resistance at 56.58p. This view is in line with what I wrote in this article.

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