3 reasons why Boohoo share price could jump by 55%

Boohoo (LON: BOO) share price made a strong bullish breakout on Thursday as investors focused on the Ocado short-squeeze. The shares jumped by more than 8% and reached a high of 40p, the highest level since June 6th. It has jumped by more than 26% from the lowest level in June this year.

Why is BOO stock rising?

There are three main reasons why Boohoo stock price is soaring. First, some investors believe that Boohoo could become a takeover target, thanks to its cheap valuation and strong brand awareness in the UK.

This view continued after Frasers, the parent company of SportsDirect, upped its stake in the company. It increased its shareholding in ther company from 5% to 6.7%. In a statement, Frasers said that Boohoo was a good brand that was quite undervalued.

Second, the stock is rising in light of the ongoing short-squeeze of Ocado Group, which I wrote about here. Ocado shares have surged by more than 150% in the past few months, as investors cheered the likelihood for an acquisition. Ocado also jumped after the company won a 200 million pound patent litigation this week.

Therefore, analysts are drawing parallels about Ocado and Boohoo. The two are highly popular ‘technology’ brands in the UK that are also highly shorted. Dara by Morningstar shows that Boohhoo has a short interest of 4.97% while Ocado’s stands at 5.61%. Other heavily-shorted companies in the UK are Kingfisher, Moonpig, and Hammerson.

As such, some investors believe that Boohoo share price could go through a short-squeeze as well. A short squeeze is a period where investors increase their positioning for heavily-shorted companies in a bid to push their stock high.

Finally, Boohoo stock price has jumped because of the strong performance of other fast fashion stocks have risen. H&M shares have soared by over 53% this year while Inditex has risen by 35%. Will one of these companies make a bid for Boohoo? 

Outlook for Boohoo share price

Boohoo stock has gone through a tulmotous period in the past few years. It has crashed by more than 90%, giving it a market cap of just 502 million pounds. In all this period, data shows that its insiders have not sold shares. Instead, an insider bought shares worth over 10 million pounds a few months ago.

Insiders still own 23.2% of the company. In periods of turmoil, insiders tend to dump their stakes. Therefore, the fact that these people have held on to their shares is a positive thing

I also believe that Boohoo has bottomed and that the situation will improve in the next twelve months. For one, the cost of doing business and consumer inflation is falling, which could lead to more demand for the stock. 

As shown above the stock has formed a strong bottom at around 32p. In price action analysis, this double-bottom pattern is usually a positive view. My target for the stock is the year-to-date high of 61p, which is 55% above the current level.