Why did this AI-related FTSE 250 stock soar 81% in March?

Sudden price jumps are usually a good thing, but the reason this FTSE 250 stock soared in March was nothing to do with a sudden performance improvement.

| More on:
A graph made of neon tubes in a room

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 250 hosts a broad selection of lesser-known mid-cap stocks that occasionally experience massive price jumps. One in particular gained 81.6% in March, with the majority of the gains happening in a single day. 

The company? Spirent Communications (LSE:SPT).

Spirent is a British multinational telecommunications testing firm based in Crawley, West Sussex. The company provides automated testing and assurance for networks and security systems with an aim to reduce downtime and business interruptions. It recently began adopting artificial intelligence (AI) to streamline and optimise its solutions.

The UK’s struggling tech sector 

High interest rates and inflationary pressures have resulted in reduced spending on technology in the UK. Spirent has been struggling for several years, with its share price experiencing some large falls in 2023. The worst was in the first week of October when it lost over 33% in the space of a few days. 

In that week it hit a low of 79p – a huge drop from its all-time high of 310p in September 2021. The lower valuation meant it began attracting interest from US companies looking to acquire UK businesses.

But it’s just one of many UK tech firms that have been approached by US companies recently. The struggling UK economy is making it difficult for businesses to flourish, forcing many to sell out to US rivals. But not all are succumbing. Last month, major electricals retailer Currys turned down a bid from US hedge fund Elliott, despite the offer rising from 47p to 67p per share.

The American connection

The reason for last month’s sudden price increase was a £1bn takeover bid from US telecoms firm Viavi Solutions. On 5 March, Spirent accepted the offer from the Arizona-based firm, causing a single-day price jump of 60%. Then, on 28 March, it rose a further 20% after fellow US tech firm, Keysight Technologies (NYSE:KEYS), outbid Viavi with a £1.16bn offer.

With the acquisition now confirmed, Spirent will be delisted from the London Stock Exchange (LSE) and become a subsidiary of Keysight. Shareholders will be entitled to a special dividend of 2.5p per share in addition to any final dividend for the year ending 31 December 2023. 

Keysight is a $28bn tech firm listed on the New York Stock Exchange (NYSE). It develops technological optimisation solutions for governments and enterprises with a focus on the aerospace and defence industry. Over the past 10 years, its equity has risen steadily to £4.81bn. During that time, debt has remained relatively stable at around $1.8bn, cutting its debt-to-equity ratio in half. With $9bn in assets and $4.2bn in liabilities, it has a clean balance sheet.

But the recent growth has pushed up its share price. It now has a price-to-earnings (P/E) ratio of 28.2 – considerably higher than the industry average of 19.1. So the shares could be a bit overvalued and might struggle to make significant gains from here. Forecasters predict very little growth (4.8% on average) over the next 12 months.

Keysight is now one more of a growing list of US companies tapping into the UK market. Since local investors seem disinterested in firms valued under £1bn, we’ll likely see more US acquisitions of FTSE 250 companies. 

Whether or not this will be good for the local economy remains to be seen.

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.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »