Insights

Why Sierra Wireless Stock Was on Fire Monday

What happened

Internet of Things (IoT) connectivity solutions provider Sierra Wireless (NASDAQ: SWIR) was a hot stock on Monday but not because of its fundamentals. The company is the subject of buyout speculation; this chatter had pushed its share price up by nearly 18% in mid-afternoon trading that day.

So what

Monday morning, Bloomberg reported that Sierra’s peer Semtech (NASDAQ: SMTC) is in “advanced talks” to acquire the company. Citing “people familiar with the matter,” the financial news provider said that a deal between the two companies could be announced within days.

The article did not speculate as to how much such a deal could be worth. At the moment, Sierra’s market cap is slightly over $1.1 billion. Semtech is more than three times larger. As of the end of April, Semtech had nearly $290 million in cash and short-term investments, and $197 million in long-term debt.

Semtech, a California-based chip maker, is already active in the IoT hardware space. A play to acquire Sierra, then, certainly makes sense, assuming that the company aims to significantly ramp up its presence in that segment.

Neither Sierra nor Semtech has yet officially commented on the Bloomberg story.

Now what

Any buyout of Sierra would likely command a share price premium, given that it’s smack dab in the middle of the still-popular IoT segment, and its stock has performed generally well of late. So the market’s reaction to the Bloomberg story is understandable. However, heavy caution is warranted here. Semtech’s buyout is still just speculation, so it’s unwise to bet the farm on a deal happening in the very near future.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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