boohoo shares are halfway to a pound. Can they get there?

It has been an impressive few weeks for the show’s performance boohoo (LSE: BOO). The retailer’s shares have risen by a third in 2023. They are moving close to 50p as I write this on Friday.

Compared to where he was a few weeks ago, that’s good. But they remain 45% below last year’s price – and 74% lower in five years. If they recover even last year’s losses, boohoo shares could be a bargain even after the recent rise.

So, should I buy more, to add to the ones I already have?

No nasty surprises

It hardly goes without saying that the company has provided good news for investors so far. In last month’s trading update, boohoo announced that profits in the last four months of last year were down 11% compared to the same period a year earlier. There are no bright spots: sales are down in every region. The company is predicting a 12% year-over-year revenue decline over the next 12 months.

But while it may not be good, bad news is to be expected. I think investors have long priced in the disappointing sales performance this year.

The company is also planting some seeds of hope, sharing “new positive signs in the global supply chain“. They include lower noise and lower shipping costs, which I think can contribute positively to boohoo’s profits.

Improve investor confidence

So, the recent rally in boohoo shares reflects a sense of relief among investors that the business performance is not worse than expected.

However, no bad news is different from good news. I have helped push the stock up a lot. But I’d be surprised if that’s enough to push him to the pound mark.

For that to happen, I think companies need to show concrete progress. Improving profit margins may be part of that and a better supply chain may help. But many investors will also look to boohoo to stop sales from shrinking and, indeed, to return to growth.

I took boohoo shares

If that happens, I think the price can edge up to the pound again. They were trading at more than £4 each less than three years ago, so the pound per share is still a long way from its past glory.

But clearly something needs to be done. The competition is in very fast mode, threatening the profits. Inventory reduction may be good for cash flow, but it can leave customers less satisfied if it means orders take longer.

As well as managing its bottom line with tight cost controls, boohoo needs to return to topline growth in an environment of increasingly cost-conscious shoppers. It could be: people need to wear clothes and the company offers several very cheap product lines. But recent boohoo sales trends are not encouraging.

I continue to hold boohoo shares. However, I will not add more if there are no more promising concrete signs that sales in the company are increasing again.