Any significant share price jump in a short space of time catches my attention. So you can imagine my raised eyebrows over the course of this week as the Darktrace (LSE:DARK) share price jumped higher. This compounds the move seen in late July, and means that even after a disaster of a past year, the share price is only down 5% now over that time period. Here’s what has been going on.
Takeover speculation
Let’s address the most recent jump this week. The share price popped 20% early Tuesday following confirmation from Darktrace that private equity firm Thomas Bravo is interested. It said that “discussions are at a preliminary stage and there can be no certainty that any offer will be made, nor as to the terms of any such offer”.
This statement wasn’t enough to put any kind of dampener on the share price for the rest of this week. Nobody knows if a formal offer will be made. More importantly, no one knows what the price might be. But considering that the high of the year is still almost double the current price, investors are clearly betting that the value will be higher than what the company is trading at.
I never find it a smart move to buy and sell based on takeover potential. It’s very speculative and short-term as a strategy, whereas my aim is more long-term and focused on fundamentals.
Better-than-expected results
Late last month, Darktrace released a trading update for the full year. It noted year-on-year expected revenue growth of at least 48%. I do admit that the top line sales growth is impressive over the past couple of years. Ultimately, this hasn’t so far resulted in a profit, but it’s moving in the right direciton.
The company also reported adding 500 net new customers, which grows the base by 32% versus last year. With other points talking about a brand refresh and the launch of a new cyber security AI product family known as PREVENT, the report read well overall.
From this, the share price lifted. It has also managed to hold on to these initial gains from results day and carry them forward in August.
Tech sector helping the Darktrace share price
Finally, I think that the move higher in the past month reflects the broader rally in the tech sector. The NASDAQ index (which houses the largest tech stocks in the world) has jumped 12% in the past month. I know this doesn’t match the 61% rise in Darktrace, but this is the overall index. Within it, some tech names have experienced larger moves higher.
The tech sector is very sensitive to the state of the broader global economy, as most are growth stocks that need consumer spending and heavy investment to propel the business forward.
Whether this rally is sustainable or not for the rest of the year is unclear, but in the short term it’s certainly helping this area outperform.
