THG shares could be forming a bottom – is now the right time to buy?

​THG share price

THG share price THG, formerly known as The Hut Group, and once one of the leading British start-ups, is currently valued at around £1.5 billion by the market, compared to the £5.4 billion price tag it commanded when it listed in September 2020.

With its share price having dropped by around 90% peak-to-trough from its January 2021 high and the company having become a takeover target, investors will be wondering whether now is the right time to buy the share.

At its peak, THG attracted millions of dollars from some of the best-known venture capital firms, including Softbank, with its market valuation jumping to over $8 billion before crashing down as investors started to worry about its poor corporate governance, including a controversial “golden share” that protects the company from a takeover, its earnings, business size, and its claims.

Thanks to efforts by the company to beef up its corporate governance and improve transparency around its small but fast-growing platform business, Ingenuity, the share price has stabilised.

In addition, a £200 million investment into a huge new warehouse in Manchester, so that THG can handle an expected boom in e-commerce orders, as well as “numerous” rejected early-stage takeover bids, have also helped its shares stabilise above their 72 pence March low.

The automated warehouse, which houses over 250 robots and is already partially operational, can process up to 500,000 items a day so that it can deal with a mammoth £14 billion of orders a year for the group's online beauty websites, including Lookfantastic, Cult Beauty and Espa.

The embattled founder and chief executive of THG, Matt Moulding, wants to open similar warehouses in New Jersey and Dubai alongside existing ones in Melbourne and Poland as part of his global strategy. Full-year (FY) results for 2021 showed adjusted earnings before interest, tax, depreciation and amortisation of £161.3 million and a group gross margin of 44.7%.

For the current year, the UK ecommerce group expects adjusted profit to be “broadly in line” with 2021. This represents a downgrade from analyst expectations of £206 million due to higher-than-expected cost inflation which was only partially offset by raising its own prices. The company’s forecast for sales growth of close to 25 per cent remains in place.

Moulding has told City investors he would move from the standard to the premium segment of the London Stock Exchange “at the appropriate time”. The shift, which would allow its shares to be included in FTSE indices, was one of several measures announced during 2021 in response to the slide in its share price. He also said he would unwind a “special share” takeover defence more quickly than planned and recently appointed media veteran, Lord Allen as a non-executive chair, calling time on Moulding’s tenure as chair and chief executive.

THG’s technical share price picture looks encouraging

With the THG share price gunning for its 119 pence April peak, the odds are increasing that a saucer bottom is in the process of being formed.

This technical chart pattern has the shape of a rounding bottom and would be confirmed by a rise and daily chart close above the 143p February high.

An advance above the 143p level should then trigger a move towards the 235p January peak, a rise above which would have the 200-day simple moving average (SMA) at 284p in focus.

Immediate upside pressure should be maintained while the THG’s share price stays above last week’s low at 102p. Below it a two-month uptrend line can be seen at 94p and the last major reaction low at 87p.

Only a currently unexpected slip through the uptrend line and 87p low would not bode well for the bulls and probably provoke a sell-off back to the 72p March trough and below.