boohoo (LSE:BOO) is a former leader in the fickle world of fast fashion, and its share price has been on a wild ride. That ride would make even the most seasoned investors reach for the motion sickness pills. But what’s next for this once-high-flying darling of the market?

Unravelling the numbers

At first glance, boohoo’s current state seems more bargain basement than on-trend boutique. The shares have taken an 11.7% tumble over the past year, shrinking its market cap to a mere £368.3m.

Let’s start with the good news: boohoo’s revenue stands at a respectable £1.46bn. However, the bottom line is where things start to look a bit threadbare. With losses of £137.8m, boohoo has a worrying net profit margin of -9.43% and a negative price-to-earnings (P/E) ratio of -2.7 times.

Despite these concerning figures, some analysts argue that boohoo might be undervalued. The share price is potentially trading at a 60.5% discount, according to a discounted cash flow (DCF) calculation. Moreover, with a price-to-sales (P/S) ratio of just 0.3 times, the shares are trading at significantly below the value of competitors in the space, with an average of about 0.7 times. Although such estimates can be more an art than a science, that’s a lot of potential if the strategy works out over the long term.

The future

Looking ahead, I see a fairly mixed picture. boohoo has £330.9m in cash. However, this is offset by £463.6m in debt, resulting in a net debt position of £132.7m . As a result, the debt-to-equity ratio of the firm stands at a concerning 116.2%. With competitors in the sector having much healthier balance sheets, the extent which the firm can innovate may be pretty limited. The impact from these rivals — both new and established — may explain the dramatic drop in website traffic, down by about 50% since last year.

Analysts forecast annual revenue growth of 4.45% for the next five years. While this isn’t exactly fast fashion speed, it’s movement in the right direction. However, this growth needs to be balanced against current losses and the challenges facing the retail sector as a whole. I’m not convinced this will be enough to excite new investors.

The entire speciality retail sector has been facing challenges for a number of years now. Supply chain disruptions, inflationary pressures, and the threat of recession in many markets have all contributed to a less-than-stellar performance across the board. Although things are gradually improving, it’s not clear whether this trend will continue for the long-term.

Not for me

I see an investment in boohoo as a high-risk, potentially-high-reward proposition. If the company can reverse its losses, capitalise on its strong brand recognition, and navigate challenges, investors could easily see a significant move higher for the shares. The current valuation multiples suggest there’s ample room for appreciation if boohoo can right the ship.

However, the path forward is strewn with potential pitfalls. The company’s negative profitability metrics and high debt levels are red flags that I can’t ignore. I’ll be avoiding this one for now.