Boohoo has seen its share prices drop to a 13-month low after analysts at RBC Markets expressed doubt over its future growth.
The Canadian bank reduced its target price for the online fashion retailer from 160p to 125p yesterday and retained its “underperform” rating on the stock.
This sent shares dropping 4.6 per cent and continued a significant downward trend, with Boohoo seeing a 34.35 per cent drop in share prices over the last three months.
It attributed its downgrading to an unsustainable level of growth at the retailer, which has held off on much-needed investment.
“We do not think Boohoo’s customer proposition is competitive enough to sustain higher levels of growth, not least without significant investment,” RBC said in a note to investors.
“We continue to see 15 per cent earnings downside risk and retain our Underperform rating. At our lowered PT of 125p (from 160p), the shares would trade on FY19e 1.7x EV/Sales – a multiple we believe is fair given the less attractive longer-term growth prospects, in our view.”
“In light of the highly competitive nature of the industry and Boohoo’s lower ranking in our Internet Framework, we believe Boohoo needs to invest further in establishing defendable competitive moats.
“We therefore anticipate a margin re-set driven by price investments, rising customer acquisition costs and enhancements to enhance the proposition, particularly around delivery, where Boohoo is less competitive than its peers.”