The Avast share price jumped 22% last week! Here’s what I’m doing

With rumours of a potential buyout bid coming from a US rival, the Avast share price rocketed higher last week. Jonathan Smith investigates further.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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When I see a share price move more than 10% in a week, I’m always keen to have a look at it. Usually a move of this size is due to a significant change in the business or some form of important news. This was the case for the Avast (LSE:AVST) share price last week. It was the top performing FTSE 100 stock, up 22%. So should I be buying shares now?

Reasons for the Avast share price jump

The main reason for the jump last week was confirmed speculation of a potential buyout by NortonLifeLock. Norton is a large US-based security software company. Even in the UK, it’s well known. In fact, I’ve used Norton software packages for years. 

Avast is a little less well known in the software space. However, the Czech-based company is a member of the FTSE 100, highlighting the size of the market capitalisation. It’s main antivirus software is paired with Microsoft Windows.

Although it’s been confirmed that Norton is in advanced talks to buy Avast, its statement said that “there can be no certainty that any firm offer will be made”. This is hardly a surprising statement to come out with. Obviously comments will downplay the deal until a bid has been approved. 

The bid has to be confirmed either way by August 11. Rumours are that the bid could be in the region of $8bn to $10bn. This is why the Avast share price rallied so hard. At the current price of 609p, it gives a market capitalisation of £6.3bn ($8.7bn). This puts it into the ballpark range of where a potential offer price would land.

Should I buy?

I recently wrote about a similar story with the Morrisons share price. The supermarket saw a large pop in its price following a potential buyout offer. In that case, I decided against investing as I felt all the good news was now priced in.

For the Avast share price, I don’t think this is the case. A key difference here is that Norton and Avast are very similar software companies. They complement each other well, so I think there are a lot of synergies and benefits from coming together. In effect, all the best practices can be shared, which is a net benefit. Products can also be cross-sold and client relationships shared.

It’s not certain what form the buyout might take or how Avast shareholders would directly be impacted. This uncertainty isn’t great for a potential investor like myself. Aside from this, the big risk I see is that if any deal falls through, I’m left holding shares when the Avast share price is at all-time highs.

During the stock market crash last March, the Avast share price traded down to around 300p. At 609p, it’s a big risk if things don’t come off.

On balance, I would look to invest now, but only with a small amount of money. The potential deal would offer great benefits, but at this stage I don’t even know if a deal will be struck.

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.

jonathasmith1 does not own shares in any firm mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft. The Motley Fool UK has recommended Avast Plc and Morrisons. 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.

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