The share price of video gaming company Keywords Studios (LSE: KWS) has rocketed this morning (20 May). As I write this, it’s up about 63%.
So, what’s going on? And after that kind of gain, should investors consider taking some profits off the table?
Why the share price has popped
The reason the tech stock has soared today is that Keywords has released a statement in relation to a possible takeover offer. That comes from European private equity group EQT at a price of 2,550p.
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In the statement, Keywords said that the possible offer follows four previous unsolicited proposals from EQT in recent months, all of which it rejected.
The new price, however, represents a significant increase from the initial proposal. And after carefully evaluating it, the company’s board would be “minded to recommend” it to shareholders. That is, of course, should a firm intention to make an offer be announced.
It’s important to note here that no official offer has been made yet. Takeover regulation states that EQT has until 5pm on 15 June to say whether it will make one or not.
I’m not surprised
I’m not shocked by this development.
Just last week, I wrote that Keywords Studios shares were cheap.
I noted that analysts at Deutsche Bank had a price target of 2,470p on the growth stock. That’s around 90% higher than the share price at the time.
This potential offer from EQT is very close to that price.
After the share price jump today, the stock trades on a forward-looking P/E ratio of about 22. I think that’s a fair valuation.
The best move now
I don’t own the shares at present.
I have held them in the past but I sold in 2022 near 2,520p. And I made a decent profit.
If I owned them today, however, I’d probably sell some or all of my holdings now.
The reason I’d take some money off the table now is that, as I mentioned earlier, no official takeover offer has been made by EQT.
So, there’s no guarantee that a deal will go through here.
If EQT decided after due diligence that it wasn’t interested in Keywords Studios, the shares may plunge.
I’d rather take a share price of around 2,375p today. It’s 63% higher than the closing price at the end of last week. So why would I wait around and maybe (or maybe not) get 2,550p, only about 7% higher?
But that’s just me.
This ‘bird in the hand is better than two in the bush’ approach isn’t going to suit everyone.
Further gains?
It’s worth pointing out in the statement today, the company wrote: “Keywords Studios shareholders are strongly advised to take no action.”
This could indicate that the company believes another bidder may emerge.
In the past, I’ve missed out on gains when this has happened (with Sky shares).
But there have also been times where I’ve also regretted not selling after initial takeover speculation (with GB Group shares).
Such situations can be hard to navigate as one never really knows how they’re going to play out.
Maybe the best approach if I still held the shares today would be to sell half my holding now and hold on to the rest to see how the situation plays out.
