Boohoo (BOO) shares dropped after a scandal broker finding poor working conditions for factory workers in Leicester. Will Boohoo’s attempt to repair their reputation by improving worker conditions and offering the public greater transparency see a recovery of the fashion retailer’s share price?
Boohoo has just announced they will cut more than 400 firms from their supply chain following allegations of poor treatment of factory workers.
The fashion retailer is trying to repair its reputation after claims of poor working conditions and low pay for workers in one of their supplier factories in Leicester. It was said that some workers received as little as £3.50 per hour and there was no protection against the virus available. An inspection found workers’ health was at risk due to finding locked fire doors, unsanitary toilets and no proper drinking water.
Their attempt to remedy serious issues in their supply chain will include working with 78 approved suppliers across 100 factories that ensure respecting staff and to hold a new policy of greater transparency.
The scandal wiped £1 billion off Boohoo’s share price in just two days. Other retailers such as Next and Asos also removed Boohoo products from their ecommerce sites. Share prices have already lifted 2% in reaction.
Boohoo’s share price grew 15% over 2020 as shoppers turned to the online clothing retailer during the pandemic. Despite this growth, Boohoo’s rival ASOS grew an incredible 42%, perhaps due to the saftey of the comapny’s larger market share.
Should I buy?
Analysts recommend BUYing Boohoo due to its huge market potential and safe business model of online sales.
On the four-hour chart, we see that the BOO share price found a substantial resistance at 376.5p, where it formed a double-top pattern. A double-top is usually a bearish sign. The stock then dropped to 310p last week and is currently consolidating in this range. It is also slightly below the 25-period and 15-period exponential moving averages.
Therefore, in my view, while the overall trend is bullish, there is a possibility of more weakness in the near term because of the negative headlines. However, a move above 360p will invalidate this prediction.
Analysts at Berenberg believes that the stock could rise to 460p, which is 27% above the current level. They said:
“We believe the company is making progress in implementing the near-term recommended improvements that can reduce the risk of pervasive issues in the future, but we also believe more can – and should – be done,”
Boohoo’s efforts to repair its reputation will surely boost its share price. Will you buy?