Anne Critchlow, analyst at SG, wrote: “We view the recent drop in stock prices as a buying opportunity and view this week’s supply chain / low wage controversy as an isolated incident. We are also reassured to see Boohoo take aggressive action to limit the risk of future controversies. “
The rebound came after nearly £ 2bn was wiped from the company in three days following allegations that UK factories supplying the company, which owns a chain of brands, include Nasty Gal and Pretty Little Thing paid workers below the minimum wage and failed to protect them from the coronavirus epidemic.
Wednesday afternoon, the news that the main institutional investor of the group, the Merian Global Investors subsidiary of Jupiter Asset Management, had increased its stake in Boohoo to just over 10%, also reassured the city.
Analysts said Boohoo’s stocks were largely pushed by small investors who took advantage of the fashion chain’s sharp drop in share prices to invest.
Stock prices were also supported as hedge funds, including PSquared Asset Management, which had taken short positions – a bet against a company’s stock price – closed their positions after enjoying three days of strong Boohoo shares down.
The shares rose to 286p Thursday, but it was about 27% below the closing price of 390.5p Friday before reports of the problems at a factory supplying Boohoo.
John Stevenson, an analyst at Peel Hunt, said the stock price had dropped too low, given that Boohoo had made a serious commitment to tackle Leicester’s problems. He said the group’s sales could take a hit, especially if some key online influencers decide to step back from promoting Boohoo’s brands in light of the revelations, but the effect would not be enough to justify the dramatic drop in its share price since Friday.
“People have seen that it goes too far,” he said. He added that investors had also seen that Boohoo “was clearly on the plate” with a package of measures to improve conditions in Leicester.