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Should I buy Boohoo shares after PwC walks? We say not right now

The share price of Boohoo (LON: BOO) tumbled 14 percent after its auditor PwC has walked away from a tender process.

With shares in Boohoo appearing to put Leicester factory scandal somewhat behind them a few weeks ago, it appears that institutional investors, politicians and now its own auditors will not be so quick to dismiss the concerns.

Since news of excellent financial results, its shares rose to 390p, but now find themselves back below 300p at around 270p.

Commenting on PwC’s decision to walk, Boohoo noted:

“boohoo, a leading online fashion retailer, notes recent press commentary with regards to its auditor PricewaterhouseCoopers (“PwC”). The Group would like to place on record that PwC is still the Group’s auditor at this time. The Group’s Audit Committee has recently launched a competitive tender process for the Group’s audit, and will update shareholders at its conclusion. PwC signed an unqualified opinion on the Group’s 2020 Financial Statements and having served as the Group’s auditor since 2014, is not participating in this process.”

Our View

There are testing times ahead for Boohoo. While consumers may continue to shop at boohoo in their masses, the wider community has a reputation to protect. We’ve seen big fund managers dump the stock, MP Liz Kendall write to Jupiter asking to oust its current CEO and there appears to be more regular scandals emerging in the process about its its operations.

Big names don’t want to be associated with Boohoo right now at a time when ESG is becoming ever-more important.

One must also not forget the damning report by ShadowFall some months ago which raised multiple red flags about Boohoo’s governance.

Retail investors may be tempted to buy into Boohoo but need to be cautious – institutional investors are going to want to see more evidence of its operational progress regardless of its market-beating financial performance.

Essentially the bottom line is it doesn’t matter how good its financial performance evidently is, if big fund managers are not comfortable to hold the stock due to reputation fears it will evidently be incredibly volatile.

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