Sob story – Even if history does not repeat itself, suggests it could at least echo


Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

“We view Boohoo, the online high fashion clothing and accessories business aimed at 16 to 24-year-olds, as a brand and design-led online player with an underrated competitive advantage in sourcing and supply chain, operating in a market with attractive structural growth globally. It is a differentiated offer in an attractive niche.”

So began an analysts’ note from UK fashion website that, while typically enthusiastic, did not have The Value Perspective reaching for its wallet – not least because a price/earnings ratio of 88x puts it in a category we would call ‘outrageously expensive’. For the record, after floating on Aim in mid-March at 70p a share, two months later’s share price stands closer to 50p.

It is often said that asset bubbles are never obvious and that it is only with the benefit of hindsight you can see that markets were riding too high but, in this instance, The Value Perspective is prepared to go out on a limb and say that something is happening that should make investors uncomfortable – and it is happening right under our noses.

The thing is, if we single out a particular business as evidence of markets losing touch with reality, we risk looking very silly further down the line. Clearly, as the stand-out examples of Amazon, Google and Microsoft show, not every tech business blows up but, as we have explained in articles such as Horse sense, value investing is all about keeping yourself on the right side of the averages.

Thus – on average – if you invest in companies that are trading on very rich valuations, such as, then you risk losing money because – on average – expensive businesses disappoint. Of course it is possible for expensive businesses to go on to become huge successes – and maybe even justify sky-high valuations – although it is not immediately obvious to us why Boohoo should be one.

Yes, it is a technology stock, which has at times been known to get a lot of people very excited indeed, but it is not as if it has discovered a shiny new renewable energy, say, or perpetual motion. It is an online fashion retailer and, while it enjoys high growth in sales, should the market really be placing it on such a high multiple of profits (of which it currently does not have very much)?

We hate to take issue with something Mark Twain is supposed to have said but, some 14 years after the collapse of – the not dissimilarly-named online fashion retailer that has become synonymous with the UK’s original dotcom boom – if history does not actually repeat itself then, from time to time, it would certainly appear to echo.


Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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