One investing strategy is to try and go against what many other investors are doing. With shares in THG (LSE: THG) down over a quarter so far this year alone, many investors clearly do not fancy the firm’s prospects. Since it listed four years ago, the THG share price has shed 93% of its value. Ouch!

From a contrarian perspective though, could this represent a long-term bargain for my portfolio?

Complex business with some real strengths

With so many sceptics in the City, I think THG struggles to put forward its investment case.

This is a sizeable business. Last month’s interim results showed revenues of £911m in the first half alone. While that was almost the same as in the prior year period, the fact that THG maintained revenues on that scale belies what has happened to its share price since the turn of the year.

Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) also grew 4% to £49m. Personally, I do not find that a useful measure as it typically excludes actual costs a business faces, but I recognise that THG continues to perform decently using that measure.

THG’s nutrition business is performing strongly and I expect that to continue. Meanwhile, its e-commerce outsourcing service has won some new customers. External revenue for that line of business was 13% higher than in the same period last year.

It’s fallen 90%+ for a reason

Still, there are quite a few things about THG that help explain why the shares have plummeted and trade for pennies apiece.

While adjusted EBITDA in the first half showed year-on-year growth, the company still recorded an operating loss of £85m. That was better than in the prior year period, but still substantial.

Net debt grew 31% to £350m. Meanwhile, free cash outflow in the first half more than doubled compared to the first six months last year, to £128m. For a company with a market capitalisation of £740m, I see that as a sizeable and unattractive number.  

A contrarian play with risks

So what do we have here? From a glass-half-full perspective, THG has a business that is generating serious revenues and still has substantial room for growth. If it can bring its costs under control and move towards profitability, the current THG share price could appear a real bargain looking back 10 years from now. This could turn out to be a gift for contrarians today.

As with many contrarian investment ideas though, there are a lot of unknowns here. If the business moves into profitability, I expect investor sentiment will dramatically improve. But whether that ever happens remains to be seen. The company is haemorrhaging cash. Its business model remains unproven when it comes to making a profit on a sustained basis.

Even if it can be turned around, that might happen by a buyer taking the business private if it is on its knees in future.

So I fear the THG share price could go lower from here and there is no guaranteed it will ever go up again. For now, I am giving the shares a miss.