The boohoo (LSE: BOO) share price has been under a lot of pressure over the past couple of months. In fact, at the time of writing, the stock sits close to its six-year low of less than 90p.
Before buying an investment, I always try to understand why other marketing participants might not want to be involved with the business. In the case of boohoo, I think there are a couple of reasons why the market has been selling the stock recently.
Boohoo share price declines
For a start, there are concerns about the corporation’s governance standards and its supply chain issues. Both of these factors have had a significant impact on investor sentiment.
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However, looking past these challenges, the company is benefiting from significant growth in the global e-commerce market. I think this trend is unlikely to go away any time soon. It could remain a significant tailwind for the firm over the next decade or so.
That said, there are some challenges of doing business in this market, which boohoo is currently struggling to deal with. Consumers are returning more items, lumping the company with excessive delivery and return costs. Unfortunately, this is all part of doing business in the space.
Boohoo has been built for the e-commerce world from the ground up. So, it is in a better position to navigate these challenges than some of its legacy peers. Many of these have tried to build online operations out of brick-and-mortar stores.
Nevertheless, I think this will remain a significant challenge for the group as we advance.
Growth potential
Even after considering all of these risk factors, I believe the corporation does have fantastic potential over the next decade. It occupies a strong position in the UK e-commerce market and is expanding its international footprint. With its stable of brands and reputation among consumers, I think the business has a solid competitive advantage.
Having used the service myself several times, I can say from first-hand experience that its customer service is second to none, and once again, this should help it outperform peers in the space.
So overall, even though the stock has significantly underperformed the market in recent months, I would be happy to buy the stock as a speculative growth play for my portfolio today. I would only buy the company as a speculative position because I am well aware of how competitive the e-commerce market is. Boohoo has the edge today, but that may not last.
Therefore, I do not want to put all of my eggs in one basket. By acquiring a speculative position, I will be able to gain a toehold in the market without over-committing myself. If the company starts to struggle, I should be able to exit the position without taking too much of a loss.
