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Why Mellanox Technologies Stock Jumped on Friday

By Daniel Sparks - Oct 26, 2018 at 5:30PM

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Buyout speculation has propped up Mellanox's stock. Here's what you should know.

What happened

Shares of chipmaker Mellanox Technologies ( MLNX ) popped on Friday. Shares rose as much as 18.3% but ended the trading day up 14.5%.

The stock's rise comes as the company reportedly explores selling its business, according to CNBC.

So what

Mellanox "has hired a financial advisor to seek a sale after receiving takeover interest from at least two companies," wrote CNBC's Alex Sherman, citing according to people familiar with the matter. Talks of a potential deal are reportedly still in early stages.

A chart showing a stock price moving higher

Image source: Getty Images.

Sherman was careful to emphasize "a deal isn't imminent and may not take place." Nevertheless, shares surged.

The company's largest investor, Starboard Value LP, has previously explored the idea of Mellanox engaging in discussions with potential acquirers.

Now what

Investors should avoid making any trades based on buyout speculation, focusing on fundamentals instead.

Rumors of a possible acquisition come as the company is growing its business rapidly. The Israel-based company posted better-than-expected third-quarter results earlier this week. Highlighting the company's momentum, it was Mellanox's fifth quarter in a row of record results.

In its third-quarter results, Mellanox guided for fourth-quarter revenue of $280 million to $290 million, up from $238 million in the fourth quarter of 2017.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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