This FTSE 250 stock has doubled in value, but I’m not buying

Jon Smith explains why he won’t be investing in a FTSE 250 stock that has risen by 103% in the past year due to a confirmed takeover deal.

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Given the size and market-cap of some FTSE 100 shares, the probability of one having the share price double in a year is quite unlikely. When I look down to FTSE 250 stocks, there’s more potential for these smaller firms to rapidly grow in value. One business that’s caught my eye is already up 103% in the past year. Yet everything isn’t as it seems.

A tech stock from the UAE

The business in focus is Network International Holdings (LSE:NETW). Even though it’s listed here in London, it serves the Middle East and African markets. The primary offer is payment solutions for businesses and financial intermediaries. This includes online payment software and card issuance and processing.

Network International has been growing in recent years, and commands a 50% market share in the UAE and Jordan. Even in the latest trading update, it held to the 2023 full-year projection of high-teen percentage revenue growth.

The performance naturally has put the stock on peoples’ radar. Yet this isn’t just with the retail crowd, bigger fish have also been circling!

Takeover bids announced

Back in April, the share price jumped over 20% in a day following confirmation that private equity firms were interested in a possible takeover bid at 387p a share. Another non-binding bid at 400p came in from an asset management firm.

Last month, the management team accepted the 400p bid. There are still plenty of points to iron out on the deal, as shareholders can choose to receive the 400p in cash or convert the shareholding to another company.

Since April, the share price has been moving higher and higher and currently sits at 385p. Clearly, this makes sense. Why would the stock trade at 300p if I could buy it and then receive 400p from the takeover bid?

Working smarter, not harder

Even though there’s some small probability everything doesn’t go to plan (hence why the stock isn’t quite trading at 400p), I’m staying away.

There isn’t much for me to gain here and I’ve missed the boat. The share price gain on a chart looks incredibly impressive, but the reality is there won’t be another 100% gain over the next year for me to jump on.

To me, this highlights the importance of researching a stock before deciding to jump in and invest. Yet it doesn’t all spell bad news. This might not be the opportunity, but it tells me that institutional buyers see bargains in the market right now.

I agree with them, and feel there are other tech companies listed in the UK that warrant attention. One example I like at the moment is Beeks Financial Cloud Group. I feel the upside potential here is high (with no chatter of a takeover at the moment!).

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 assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Network International Plc. 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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