Is Boohoo.com ridiculously overvalued?

IPO WATCH: The online retailer has soared after floating on London's AIM, but beware of dotcom fever 2.0.

by Rachel Savage
Last Updated: 14 Oct 2014

Boohoo.com’s stock market debut has been positively bouffant so far. After pricing its shares at 50p, the online fashion retailer’s shares soared as much as 70% to 85p on the AIM market this morning.

The shares are now back down at around 77p, which still values the company at £770m or so. Pretty staggering, if you consider that its revenue was £91.9m in the ten months to December 31, with operating profit of only £9m.

The rash of retailers floating in the last couple of weeks have had mixed success. Convenience store McColls is trading at 2.4% below last Tuesday’s listing price whereas white goods website AO.com is up more than 25% after floating last week. Poundland is also trading 25% higher, in contrast to Pets at Home, which is trailing along at 2% below its list price after they both listed on Wednesday.

Online retail is definitely booming, having been talked about as the next big thing for donkey’s years and Boohoo and AO.com are in good company. Asos, which is also listed on AIM, is worth £5.8bn, bigger than some FTSE 100 companies and more than 26,000% times what it was when it floated way back in 2001. Brits are also streets ahead of their continental counterparts in adopting new technology, such as smartphone shopping.

However, enormous e-commerce valuations risk becoming frothier than a skinny cappuccino. A web-based business doesn’t automatically equal sustainable growth, although it probably helps nowadays. Investors need to look at the dotcom debutantes on their own merits, rather than getting swept up in IPO fever and risking another early noughties bubble and bust.

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