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Why Diamond Resorts International Inc's Shares Popped 31% in June

By Travis Hoium – Jul 9, 2016 at 9:21AM

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A buyout offer gave investors the payout they were hoping for in June.

Image source: Getty Images.

What: Shares of timeshare company Diamond Resorts International Inc (NYSE: DRII) jumped 30.7% in June, according to data provided by S&P Global Market Intelligence, after getting an offer to be bought out.

So what: Apollo Global Management agreed to buy Diamond Resort for $2.2 billion, or $30.25 per share, in an all-cash deal. The offer brings to an end months of speculation about what the company would do amid potential regulation in the timeshare industry, and a sharp drop in the company's share price.

If you're bullish on shares, it's easy to see this offer as a disappointment. Shares still trade at just 11 times forward earnings estimates, but the market wasn't giving the stock a high price, so management went looking for alternatives from private equity buyers.

Now what: With this offer firmly in hand, investors probably don't have much upside in Diamond Resorts unless Apollo ups its offer before the deal closes. But there's probably more risk in a deal falling through than seeing an increase. I would take some, if not all, of my gains from this offer and move on to other opportunities because a buyout at a big premium is probably the best investors could hope for in 2016.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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