A stock might have fallen in value, and even be trading at a low absolute level. However, that doesn’t always mean it’s a bargain worth buying. After mulling over one such example, I’m confident I don’t want to own the FTSE stock, and that the worst might not be behind it!
A blast from the past
I’m talking about THG (LSE:THG). Even though the share price is up a modest 4% in the past year, it masks the long-term downward trend. It went public in 2020 at 500p a share, with investors initially excited about a fast-growing combination of e-commerce, technology and consumer brands. Today, the business is considerably simpler, but I’m still not convinced the shares are a bargain even at 30p.
THG essentially consists of two divisions. THG Beauty owns and operates online beauty businesses including Lookfantastic and Cult Beauty, while THG Nutrition is centred on Myprotein. In 2025, the two generated combined revenue of roughly £1.72bn.
Why I’m not keen
Over the past couple of years, questions have emerged around a whole host of topics at the business. This ranges from corporate governance and profitability to, in particular, the valuation and prospects going forward.
The fundamentals have also become less exciting. Revenue from the continuing Beauty and Nutrition operations was £1.72bn in 2025, compared with £2.18bn for the wider group back in 2021. More importantly, the adjusted EBITDA margin was just 4.5% last year, versus 7.4% in 2021.
That’s a problem for me. E-commerce can generate huge sales figures, but if relatively little reaches the bottom line, there’s not much room for error.
The outlook isn’t exactly making me reach for my cash either. Today’s (10 September) half-year results showed adjusted EBITDA jumping 109% to £42.8m, which sounds excellent. Yet management warned that Q3 revenue growth should slow to around 2%, partly because of new EU customs charges affecting Beauty. A European heatwave hasn’t helped demand either.
There are other risks. Myprotein remains exposed to volatile whey costs and currencies, while Beauty operates in an intensely competitive market. THG also ended 2025 with £233m of net debt. That’s falling, but I’d still rather see a stronger balance sheet alongside consistently improving margins.
The other side of the coin
Some may think the stock is starting to become an undervalued gem. Management is guiding for £25m-£50m of 2026 free cash flow with net debt falling towards £110m-£130m. If THG can deliver that while rebuilding margins, I think sentiment could improve.
Also, in terms of sectors to operate in, health and general beauty will always have demand from customers. It’s unlikely anything (including AI disruption) will change things for THG.
Despite these positive elements, I’m still staying well away from this FTSE stock and believe investors have better opportunities to consider elsewhere.
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Jon Smith does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
