Boohoo (LON: BOO) share price has staged a strong recovery after bottoming in October. The stock jumped to a high of 37.38p on Thursday, its highest point since September 4th of this year. It has risen by over 32% from the lowest point in October, making it one of the top-performing UK companies.
Is Boohoo an acquisition target?Boohoo is one of the best-known online retail companies in the UK with more than 25 million online visitors every month. The company has been under pressure in the past three years as its growth has eased.
Boohoo stock price has crashed by 40% from its highest point this year and by 91% from its record high of 433p. This crash happened as the company slowed as evidenced by the recent financial results.
These results revealed that the company’s revenue dropped by 17% to £729 million in the first half of the year. Its gross profits plunged by 16% to £389 million while the gross margin stands at 53.4%. Also, the net cash/debt moved to minus £35 million.
Most importantly, the Boohoo believes that its slowdown will continue falling in the coming months. It sees that its revenue will drop by between 12% and 17% while its adjusted EBITDA margins will be between 4% and 4.5%.
Boohoo is also facing strong competition from companies like Temu and Shein. Shein, the Chinese giant, is about to go public in a deal valuing it at more than $80 billion. Temu, which is owned by PDD Holdings, is also seeing strong demand around the world.
Nonetheless, there are signs that there are some positive signs about Boohoo and other small British companies. First, there is interest for British companies by American companies. On Thursday, KKR agreed to acquire Smart Metering.
Boohoo could become an acquisition target because of its substantially lower valuation. This likely explains why Mike Ashley is actively acquiring the stock. Mike, who owns Frasers, now owns a 17% stake in the company.
The other potential catalyst is the potential for lower interest rates in the UK as inflation falls. As I have written before, gilt yields have tumbled to below 4%, which is a sign that investors anticipate a rate cut in the UK. Boohoo does well in a low-interest rate environment.
Another likely catalyst is the fact that Boohoo’s insiders have not sold their shares as many of them do when there are challenges. Mahmoud Kamani has a 12.50% stake in the company while the entire family owns a 25% stake.
Boohoo share price forecast
The daily chart shows that the BOO stock price has staged a strong recovery in the past few weeks. It has now moved above the crucial resistance level at 36.70p, the highest swing in December. By doing that, it invalidated the double-top pattern.
The stock has jumped above the 100-day and 50-day moving averages and formed an inverse head and shoulders pattern. Therefore, the outlook for the stock is bullish, with the next price to watch being at the 200p level at 40p.
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