FTSE AIM incumbent Sumo Group (LSE:SUMO) saw its shares rise more than 40% today as I write. The UK-based video game holding firm is being taken over by Chinese firm Tencent, which is the company behind Fortnite, one of the worlds biggest video game sensations. This takeover bid has also got me thinking about other FTSE growth stocks I could add to my portfolio.
Sumo provides game development and technical outsourcing to larger studios and game publishers. Tencent has offered £919m in cash for the Sumo Group. Tencent is a big acquirer of Western entertainment and culture businesses. It has an influential stake in music, movies, TV, and video games. It has invested in more than 60 different gaming companies in 2021 to date as it capitalises on activity volumes spiking since the pandemic began.
Altogether Tencent is estimated to be the second-largest video games company by revenue, behind only Playstation parent company Sony.
Tencent already owned approximately 8.75% of Sumo and offered 513p per share, which is a 43% hike in Friday’s closing price of Sumo shares. Chief executive Carl Cavers commented, “The opportunity to work with Tencent is one we just couldn’t miss.” Cavers, who is a shareholder himself, is backing the Tencent offer alongside his fellow members of the board.
Before the news broke today, Sumo was very much a FTSE growth stock. It closed on 358p per share last Friday. If I had invested in Sumo last year, I would have doubled my money prior to the share price rise. Shares were trading for 182p per share this time last year. Based on today’s spike too, that’s a nearly 200% increase which is impressive.
It must be noted that Sumo is not being sold on the cheap. Shares were trading at 40 times forecast earnings prior to the takeover news. At the bid price, that has risen to close to 60 times earnings. Sumo has reported an increase in revenue and profit year-on-year since 2017, which is impressive.
Two FTSE growth stocks
The news of Sumo being subject of a takeover bid has only renewed my interest in looking for other growth stocks. I have identified two stocks recently that I think could be primed for growth in the long term.
Firstly, I like the Learning Technologies Group, which I wrote about recently. Due to the pandemic, e-learning services are in high demand with the lack of face-to-face interactions. The risk involved with Learning Technologies Group is further restrictions and another lockdown may mean businesses spend less on training as they look to conserve cash. This would affect its bottom line.
Next, I like warehousing and distribution firm Urban Logistics REIT. A REIT is a real estate investment trust. Essentially, it owns, operates or finances income-producing properties. The recent e-commerce boom brought on by the online shopping due to the pandemic has benefited distribution and warehousing firms. A risk to Urban is the fact that property can often be overpriced. If this property is over-valued or does not yield the expected output, it could hamper progress and financials. Property can be volatile in regular market conditions and with current economic uncertainty, this is a credible risk.
Jabran Khan 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.