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Boohoo (LON: BOO) share price sell-off continued on Tuesday as demand for the fast fashion group remained muted. The stock retreated to the important support at 35p, lower than this week’s high of 39.68p.
Unloved and unwanted
Boohoo, a leading player in the fast fashion industry, has come under intense pressure in the past few years. Its stock has plunged by more than 90% from its all-time high, bringing its market cap to just 450 million pounds.
Boohoo ha also seen its revenue drop in this period. Data shows that its annual revenue dropped by 11% in the last financial year to £1.769 billion. Its adjusted EBITDA fell from £125.1 million to £63.3 million while its margin slumped to 3.6%.
These results painted the picture of a company that has fallen from grace since at its peak, it was growing by double digits every year. Boohoo has committed to return to growth this year and turn a profit.
The company could struggle to achieve this goal as the cost of living crisis continues in the UK, its primary market. At the same time, it is in a highly competitive industry, with many young women turning to Shein, the fast-growing Chinese company.
Boohoo share price is also struggling because of the rising interest rates in the UK. The Bank of England (BoE) has hiked rates several times and pushed them to the highest level in decades.
The implication is that cash is seeing some of the biggest returns in the past few years. Data shows that some banks are paying as high as 5% for deposits. Investing in US government bonds is also seeing strong returns, with the 10-year Gilt yield trading at over 4%.
In such a situation, most investors tend to move to safer assets at the expense of riskier stocks like Boohoo. Recently, however, Mike Ashley’s Frasers Group, has been buying the stock. He now owns 10% of the company.
Boohoo share price forecast
In my last article on Boohoo, I highlighted three reasons why the shares will rebound. While the stock has retreated since I wrote the article, I still believe it will bounce back in the next few months.
In the short term, however, the stock will likely see some volatility, especially if the BoE decides to hike interest rates On the daily chart, the shares have been in a tight range in the past few weeks and is now consolidating at the 25-period and 50-period moving averages.
The stock has also formed what looks like an inverted cup and handle pattern. Therefore, there is a likelihood that the shares will retest the lower side of the cup at 32.72p. A break below that level will see it drop to the next support at 31.94p (September 28 low).
On the other hand, a break above the important resistance point at 41.35p will invalidate the bearish view. The next key date to watch will be October 3rd when the company will publish its interim results.
The post Boohoo share price sits and waits for October 3 appeared first on Invezz.