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Boohoo shares have seemingly run out of steam since last week. They saw a steep fall at the start of this week and despite a rally in the last 24 hours, the stock seems to have lost momentum. But what lies behind it, and if you own Boohoo shares, is it time to take profits?

Here at The Armchair Trader we generally like online retail, just as we tend to avoid the bricks and mortar sector, as we can’t see it responding effectively to the digital threat yet. Retail business is going through something of a transformation in the UK, and arguably online stores should be at the sharp end of this revolution.

Is enthusiasm for Boohoo shares waning?

Investors piled into Boohoo shares in April and drove the stock price up by more than a fifth, but enthusiasm is now waning. Shore Capital this week pulled its buy recommendation on Boohoo and this seems to have led some traders to drop Boohoo.

Shore Capital reckons Boohoo shares are “up with events” which is their way of saying they think all the news has been factored in for the time being. Traders will also be looking at the share performance from Boohoo’s rival ASOS, which was once the darling of investors who like the retail sector.

Boohoo also have a new CEO at the helm, the intriguingly named John Lyttle, who has come over from Primark. He is still untried at the position, so some investors may want to take a wait and see approach before they pick up any more Boohoo stock.

Boohoo stock has done well for investors since Xmas

Take a step back and look at the big picture, and Boohoo has done well for investors who have held shares since the start of the year. It has been looking more range bound recently and we think this will continue until there is a material change of circumstances. Investors who jumped in at 175 or even 215 have seen a decent return from the stock.

Boohoo has some really good brands and has been able to gain traction in the US market. Revenues were reported up by nearly 50% at Boohoo’s latest set of results, and adjusted profits also beat forecasts.

Investors and analysts will no doubt continue to weight Boohoo up against ASOS to see which horse they want to back in this race. You can obviously back both if you like! Boohoo is close to its 52 week high of 249. It has an historic high of about 266. ASOS shares plummeted in December and have never really recovered. If you bought ASOS shares at Christmas you would have seen a decent return, but not as much as from Boohoo.

Personally, I’d agree with Shore – it’s not time to start crying about Boohoo, but much of the upside from this stock has been realised. It might still be worth a medium term buy and hold position, but ASOS has shown us that while the high street is having a bad year, online retailers can come adrift very easily.

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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