There are many unsolved mysteries that may endure for decades e.g. the Bermuda Triangle, the Marie Celeste, Jeremy Corbyn, why Lulu looks younger now than in the 60s and why BooHoo.com has a forward p/e ratio of 50 dropping to 45 in 2018?
Forecast EPS growth at BooHoo is impressive at around 39% this year, falling to 20% the year after, but why the heady forward p/e ratios of 50 and 45? Is it because everybody thinks it's the next ASOS?
In Peter Lynch's book "One Up On Wall Street" there's a wonderful section entitled "Beware the next something". It really is a must read.
Now I'll admit that I haven't looked at this stock in detail and it's possible that I'm missing something obvious, but unless a company is a tiddler then often the p/e ratio is a simple and excellent indicator of whether or not a stock is currently overpriced.
BooHoo's average EPS growth for the next two years is around 30. Even at a heady p/e of 30 for 2018, the eps figure of 1.85p would suggest a share price of around 56p (currently 80p). Good luck if you're invested here, but to reach a share price of 100p (i.e. 25% appreciation) then the February 2018 p/e ratio would need to reach 54.
Personally, I think Lulu is more likely to start looking her age sooner than BooHoo catches up with its heady rating.
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