$Bumble Inc.(BMBL)$ ( ▲ 0.34% ) hasn’t exactly lit the world on fire since entering the portfolio a year ago, but it’s going to have a successful exit.
The company has accepted a buyout offer from Ithaca Holdings for $6.05 per share, a 138% premium to the stock’s closing price on Friday.
As of now, the stock trades for $5.94 per share, and I’m going to use that as an opportunity to take a 26% gain on the stock and move on.
Why I’m Selling Bumble
To be honest, Bumble was on my short list to sell over the last few months. I didn’t sell because I over-index to not selling stocks, and in this case, that worked out to my benefit.
But the business wasn’t exactly lighting the world on fire, and the turnaround I hoped for hasn’t really taken shape. The whole idea with Bumble was that the downside was limited given a low valuation and positive free cash flow, and the upside was high if the business turned around.
In this instance, the low downside risk has led to this buyout, and given what I see as lower upside potential today, I’m selling.
When a buyout offer like this comes in, we need to consider three risks: two downside risks and one upside risk.
-
Execution Risk: It’s possible the deal doesn’t close, in which case the stock could fall to $3 per share, or lower.
-
Timing Risk: Getting an extra $0.10 per share would be great, but how long will it take to close the deal? There are funds that pay this arbitrage game, and it’s not my game.
-
Opportunity Risk: There could be another offer that increases the price. This is the opportunity risk I’m giving up by selling now. But given the premium, I’m OK with that.
It’s time to move on and look for better opportunities.
Markets are always moving - and sometimes, the best move is knowing what works for you.
With Treasury yields, oil prices and rate expectations keeping markets on edge this week, investors are once again thinking carefully about where to position next. There’s no one-size-fits-all choice in investing — and the same goes for Tiger Merch. This month’s hot picks are in, featuring the Tiger Toiletry Bag, Universal Travel Adapter, Tiger Umbrella and more favourites chosen by fellow Tigers.
Explore the Monthly Hot Picks in Tiger Coin Mall, now 12% OFF for a limited time.
Comments