The Boohoo (LSE: BOO) share price has been sliding recently. Shares in the fast-fashion company have fallen around 4% over the past month and approximately 3% since the beginning of the year.
Over the past year, shares in the company have put in a better performance. The stock is up around 10%. However, this pales in comparison to its close peer, ASOS. Since the beginning of March 2020, shares in ASOS have returned 92%.
But I think this only tells part of the story. While the Boohoo share price has underperformed over the past 12 months, its underlying business has achieved remarkable growth, thanks in part to the pandemic.
As such, I have been taking a closer look at the stock recently to see if it could be worth adding the company to my investment portfolio.
Boohoo share price opportunity
The fast-fashion retailer achieved staggering growth in 2020. It reported revenue growth of 44% and net income growth of 46% for the year.
The boom in profitability has enabled the group to go on a buying spree. It recently spent £25.2m buying the Dorothy Perkins, Wallis, and Burton brands from failed retail group Arcadia. That followed a £55m deal to buy the Debenhams brand and website.
While the business saw impressive growth in 2020, it also faced some significant challenges. An investigation into working practices at the company’s suppliers revealed that some workers were being paid below minimum wage. To deal with these issues, Boohoo set up its own investigation.
While the company has tried to rectify its problems, the allegations and revelations have dented its reputation in the City. This is one reason why the Boohoo share price has performed so poorly compared to ASOS over the past year.
That said, it seems consumers are more than happy to continue buying from the group.
Still, this issue has reared its ugly head again today. According to a media report, the company could be facing a US import ban “because of widespread allegations over the use of slave labour.” Last year, the organisation generated more than a fifth of its global sales in the US, an important growth market for the firm.
A significant problem
Boohoo’s labour issues are a significant problem for the firm. For its part, management has said that it has increased oversight of suppliers and “ taken action against 64 suppliers who did not meet the group’s standards in the levels of transparency that business requires.”
I think there are two sides to the Boohoo story. On the one hand, there’s the group’s explosive growth rate. On the other, there are the company’s supplier issues. Then there’s the aggressive nature of the fast-fashion industry to consider. Boohoo is the market champion today, but 10 years ago, Arcadia was a darling too.
There’s no guarantee Boohoo will be able to avoid Arcadia’s fate.
Despite the recent performance of the Boohoo share price, I am not going to buy the stock today. I think there’s just too much uncertainty surrounding the group’s long-term outlook.
