One of the most exciting FTSE 250 the actions that I am are discover IE (LSE: DSCV). The company is a group of international manufacturers, suppliers and designers of electronic components.
Its share price has performed very well recently and over the past year. As of this writing it is up 19% today (August 3). As DiscoverIE continues to grow with new acquisitions in the US and UK, I am slightly concerned about the group’s recent share placement. Here, I weigh the pros and cons of the recent DiscoverIE takeovers and consider whether the stock price will continue to rise.
DiscoverIE acquires Beacon and Antenova
Investor confidence in this stock of the FTSE 250 today followed the announcement by DiscoverIE of the takeover of two new companies.
One of the companies that DiscoverIE has acquired is tag for a cash consideration of £ 58.8 million. Beacon is a United States-based designer, manufacturer and supplier of custom system-on-module (SOM) on-board computer boards and associated software. Beacon supplies the medical, industrial, aerospace and defense markets in the United States and reported strong sales of £ 20.5million in the last fiscal year.
A separate acquisition was also made for the company Antenova with an accepted offer of £ 18.2million. This UK-based company is a designer and manufacturer of radio frequency (RF) antennas and modules. Antenova has seen strong growth, with sales expected this year to be around £ 8million.
I am convinced that DiscoverIE can create new growth opportunities with these acquisitions. These two activities generated good operating margins of 20%. So based on the financial metrics, I am confident that DiscoverIE will benefit from these acquisitions.
Risks and concerns
To raise capital for the aforementioned DiscoverIE companies, he placed a total of 5.4 million new shares. This generated £ 55million which was more than the original plan to raise £ 45million. The electronics maker said the move was made due to strong investor demand.
While investor confidence in this FTSE 250 stock is encouraging, I am concerned that it may cause potential long-term problems. The placement of shares could discourage existing shareholders as their shares will therefore become diluted.
Additionally, the share price is extremely high at £ 1,232, as of this writing. The price could very well be overvalued as it has a high price / earnings ratio of 94.17. If I made an investment now, I might suffer from a drop in prices in the near future.
will i buy?
There are risks involved in purchasing this FTSE 250 share. I think with such a high PER ratio, this part is quite off-putting. I also wonder about the value for money that I will get on my shares because they have been diluted.
However, stock dilution isn’t always necessarily bad. Especially if the money is generated to stimulate efficient growth. I think based on the businesses DiscoverIE has acquired and the financial strength behind them, I am confident in their decision. I also think that makes his stock placement more than understandable. Overall, I have confidence in the direction DiscoverIE is taking and would look to add this stock to my portfolio.
John Town has no position in the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.