Why the Micro Focus share price is up 100% in 30 days

The Micro Focus share price is booming! But why? Could this news be the reason why the FTSE 250 firm is up 100% in a month?

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The Micro Focus International (LSE:MCRO) share price is enjoying a stellar time. It jumped more than 15% on Monday 7 December. And shareholders have seen the shares double in value from November to December 2020 alone.

So what precisely is driving this momentous rise in the Micro Focus share price?

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Micro Focus soars

The latest hike comes off the back of some brilliant news for long-suffering shareholders.

The Micro Focus share price surged on Thursday 3 December when Amazon named it as one of four businesses approved to help companies move across to Amazon Web Services (AWS).

AWS is Amazon’s pay-as-you-go cloud computing platform and is one of its fastest-growing departments. It accounts for 14% of Amazon’s hundreds of billions in annual revenue.

In a blog post on the AWS website the US giant provided a glowing review of the FTSE 250 company. Amazon explained how Micro Focus provided the ‘deployment environment’ software to move Kmart Australia’s merchandise system onto AWS. “The project met objectives for increased agility, cost savings with pay-as-you-go, and enhanced time-to-market,” it said.

To be chosen as an ‘approved competency partner’ for AWS does two things for the Micro Focus. It lends a huge amount of prestige to the company, and also suggests a positive outlook for the UK firm’s revenues in 2021 and beyond.

Regulatory no-show

Micro Focus didn’t make a specific announcement to the London market about this Amazon news. Normally when something happens that a company thinks will make a material difference to its share price, it is required to put out an ‘RNS’ or Regulatory News Service update.

There’s no record of this Amazon news in Micro Focus’s most recent trading statement from 18 November 2020. Nor is it in any of its RNS updates to the London Stock Exchange over the last two months. So it’s fair to say the announcement probably came as something of a surprise to the UK market.

It has taken a couple of days for the news of Amazon’s backing to filter through to investors. So that’s probably why the Micro Focus share price jumped another 15% on Monday 7 December.

Fallen star

There is one other good reason why the Micro Focus share price has jumped so much recently. It had fallen a lot! The jointly UK- and US-listed company could now be considered a turnaround stock. 

It’s not all been sunshine and rainbows for the Micro Focus share price in recent years. A series of operational missteps over the last three years has seen the share price dive from 2,600p to today’s price. And, despite the recent hike, the company is only half as valuable as it was in January 2020.

Some investors fear that the future of the business is shaky because it uses a huge amount of debt. As of 31 October 2020, net debt stands at $4.2bn, far more than its market cap. And this puts intense pressure on the balance sheet. This likely weighs on investors’ minds.

But contrarian buyers who follow Warren Buffett’s strategy of buying value stocks will now have the Micro Focus share price on their radar.

As the billionaire investor famously said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down.”

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. TomRodgers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Micro Focus and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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