The Motley Fool

FTSE 250 firms Boohoo and IG make acquisitions – Are their shares worth buying?

Image source: Getty Images.

Fast-fashion retailer Boohoo (LSE:BOO) has snapped up the Debenhams brand and website. Meanwhile, online trading group IG Group Holdings (LSE:IGG) is improving its derivatives offerings with the $1bn acquisition of US site Tastytrade. In light of this, would I buy either of these FTSE 250 stocks as long-term investments?

Boohoo acquires Debenhams

The Boohoo share price is rising in response to the news. I’ve always loved shopping at Debenhams, so as a customer I’m happy to still have the option. However, I think Boohoo shares are currently expensive. The UK retail sector has been hammered these past few years, first by Brexit, then Covid-19. Online sales are where the growth is at, but I think that’s already priced into Boohoo’s share price. It could be some time before the company sees sales growth to match its price-to-earnings ratio of 60.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

For investors focussed on environmental, social and governance (ESG) investing, Boohoo has to clean up its act. The company faced an investigation into atrocious working conditions at suppliers’ factories in the UK last year.

I think Debenhams is a good fit for Boohoo and if managed correctly, it may well help strengthen the company in the future. However, Boohoo doesn’t offer a dividend and I’m not tempted to add Boohoo to my Stocks and Shares ISA at its current market price.

IG acquires Tastytrade

Tastytrade is a fast-growing online brokerage popular among retail investors. It specialises in the US futures and options market, which has taken on a life of its own in the past year. Tastytrade offers web-based options trading on individual equities, something IG customers in the UK have been requesting for some time.

IG has a stellar platform and the infrastructure in place that will help expand Tastytrade’s presence internationally. Options trading is more complicated than simply buying or selling stocks. When done with little care, it’s akin to gambling. But when carried out thoughtfully, it can reduce risk and offer the potential of sensational returns.

An expensive acquisition

IG shareholders were not overly enthusiastic in response to the acquisition, and the IG share price fell 10%. There are a couple of reasons for this. The options market has seen spectacular growth in the past year. However, there’s mounting speculation that the high-flying tech stocks are heading for a crash. If retail investors get badly burned, it will take the shine off the growing sector and it’s likely to face increased regulation.

Spread betting business IG Group is either shooting for the stars or letting history repeat itself with a questionable acquisition. IG acquired FXOnline in 2008, around the time of the financial crash. Presumably it foresaw a bargain opportunity to grow exponentially. Unfortunately, this didn’t work out as planned when increased regulatory challenges dented its profitability.

IG currently has a price-to-earnings ratio of 12, its dividend yield is 5%, and earnings per share are 65p. It will complete the IG acquisition with a combination of $300m in cash and by issuing 61m IG shares. This gives Tastytrade a valuation around 18 times its 2020 earnings before interest, tax, depreciation, and amortisation (EBITDA).

Despite the high price tag for Tastytrade and potential for regulatory scrutiny, I think this looks an exciting acquisition. I’m tempted to buy shares in IG as a long-term investment.

For regular stock market investing ideas and help with choosing the best UK shares to buy now, sign up to The Motley Fool today.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.