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Boohoo share price has become a penny stock. Is it a good buy?

Boohoo (LON: BOO) share price has collapsed by more than 65% in 2022, making it one of the worst performing stocks in the FTSE 100 index. Other companies in the apparel industry like Next PLC and Asos have crashed by more than 30% from their highest levels this year.

Why is Boohoo crashing?

Boohoo is one of the biggest fast fashion companies in the UK. The company manufactures trending apparel and sells them through its websites and mobile applications. Unlike most companies that outsource their clothes from Asia, Boohoo’s main operations are in Leicester.

There are several reasons why BOO share price has been bleeding in the past few months. First, the origin of this sell-off was when a London newspaper wrote about working conditions in Leicester. The report led to an investigation by the UK government while the company appointed a special independent auditor to look at the issues.

To a large extent, Boohoo has come up with strategies to deal with these challenges. Indeed, recent reports suggest that the company has made improvements in its supply chains. However, the stock has not recovered.

Second, Boohoo share price has collapsed because of the ongoing impacts of higher inflation in the UK. Data published this week revealed that the country’s inflation eased slightly in August although it remains close to its highest point in more than three decades. As a result, many potential buyers have been forced to reduce their discretionary purchases, forcing many retail stocks to slip.

Indeed, Boohoo has reduced its forward guidance several times this year as its growth stalls. The same is happening internationally. On Wednesday, H&M said that its net sales grew by just 3% in Q3, lower than the median estimate of 5%. 

In addition, Boohoo is facing intense competition from the likes of Shein, the multi-billion dollar Chinese company that has become the biggest fast-fashion firm in the world.

Boohoo share price forecast

The daily chart shows that the BOO stock price has been in a strong sell-off in the past few months. In this period, the stock has crashed below the important 25-day and 50-day moving averages. It also dropped below the important support level at 51.35p, which was the lowest level on July 4. 

The stock has crashed below the downward trend shown in black. Therefore, the stock will likely continue falling as sellers target the next key support at 30p. This means that Boohoo has transitioned from a fast-growing company into a penny stock.

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