While the stock market is essentially a dull beast, and the people who occupy it even more so, now and again there is something that throws the cat among the pigeons.
By Zak Mir
In the case of Boohoo at the moment, we are left wondering whether the present alleged modern slavery situation is a bull or a sell for the shares? To use its own branding, whether the company is a Nasty Gal, or a PrettyLittleThing?
If one judges by the share price performance of recent days, one might combine the two and suggest that things have been PrettyNasty with the stock nearly halving in value. On the bulletin boards the most common comment is traders looking for a buying opportunity. Unfortunately, this is normally not a good sign, especially so after yesterday’s loss of the 200 day moving average at 300p – below which a stock or market is technically in bear territory.
Indeed, it is possible to draw a broadening triangle on the daily chart of the glamorous retailer, which fits recent price action very well. Unfortunately, for fans of the stock the lower support line of the triangle is currently pointing as low as 120p – a destination which could be hit over the next month, provided there is no rebound back above the 200-day line.
As for the factors which might get the stock so low, the first one is a traditional stock market barometer. Even at 220p the p/e of the stock is close to 40. At 120p it would be a more normal 20, something which may be appropriate given the way that Asos, Next and Amazon have dropped the brand like a hot potato. Even worse, with Alison Leavitt QC in charge of the probe into the company – and the legal profession not known for getting things done in a hurry, we are likely to have a cloud over the group for quite some time.
Of course, Boohoo is investigating the supply chain issues it has been accused of. This will be independent, but common sense and logic does suggest that £3.50 an hour labour is not something one stumbles upon and therefore the prognosis does not look great here. Even if there is no wrong doing, to have a supplier at such a low cost, when it is illegal, does suggest a mix of incompetence or negligence. We shall see.
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