Is the boohoo share price a bargain in plain sight?

As a shareholder in a fashion retailer boohoo (LSE: BOO), I might be tempted to make a cry myself! boohoo’s share price has fallen 60% in the past year.

That’s enough to bring some investors to tears. But I try to keep emotions out of investment decisions. Instead, I aim for a rational, long-term approach to evaluating stock market opportunities.

After the fall, is boohoo stock now a potential bargain that I should consider buying more for my portfolio?

Business challenges

Boohoo stock price history chart. But it’s actually a little less alarming than the competition ASOSwhich has seen a 67% stock drop in the past year.

The online retail sector faces major challenges that investors feel could harm long-term profitability. Inflation has taken its toll. A recession threatens to reduce consumer spending on non-essential clothing.

Postal raids and logistical challenges add to the difficulty of running a profitable online business. Meanwhile, rivals like Shein are threatening to undercut existing retailers’ prices. That could lead to lower profit margins in the sector, affecting boohoo as well as its competitors.

Trade updates

Tomorrow we will learn what the impact has been on boohoo lately, when the company updates the stock market on trading performance for the final (and important) four months of the year.

At Small enough the owner’s interim results covering the period of six months before then. She was closer to being petite than beautiful. Revenues were 10% lower than in the same period last year, adjusted profits before tax fell 90%, and net cash of almost £100m gave net debt £10m.

Trading remains challenging. I am not very optimistic that tomorrow’s update will detail a significant turnaround in fortune. The company has previously indicated that, if trading conditions remain unchanged, it should “revenue levels were declining to remain over the remainder of the financial year“.

But the 25% jump in boohoo’s share price over the past year suggests that other investors may be expecting more positive news than I am.

Is it a value trap?

If the company expects more, why has the stock risen so much in recent weeks?

Maybe boohoo’s share price is a value trap. It may seem cheap relative to historical earnings. But if profits continue at the same level as in the interim stage, the current market capitalization of more than half a billion pounds may be more than boohoo’s merits.

However, I remain optimistic about the retailer’s prospects. It has a proven business model that has been highly profitable until recently. The company focuses on managing costs. That can help boost profits even when profits are down. I expect that, as inflation eases and consumer sentiment improves with the economy, profits will grow again.

That’s why I see boohoo as a potential offer for my portfolio. But the company clearly faces risks in the next few years. I already have some shares. So, I’m going to grab them but now I won’t buy them again.