Data analytics software provider Sumo Logic (US:SUMO) soared 28.7% higher on Monday afternoon following the release of a speculative article from tech industry news website “The Information”, which said the company had been approached by multiple private equity firms regarding potential takeover interest. The stock hit an intra-day high of $10.25 before cooling off and closing at $9.87.

The article highlighted that private equity firms including Vista Equity Partners, Thoma Bravo and Francisco Partners were potentially interested in the company and had short listed Sumo in a list of potential enterprise software buyout targets.

Sumo was initially listed on the Nasdaq in September 2020 with an IPO price of $22 per share. The IPO was deemed a success initially with shares rising up towards $40 in the first six months of listing.

By the 12th of February in 2021 the stock reached its peak and traders began taking profits which pushed the stock below the listing price by March.

In the few years as a listed company, Sumo has been able to grow sales by around 20% each year and generated $242.1 million in 2022. The sales growth has been shadowed by operating costs which have risen at a faster pace with a total of $285 million in operating costs over the 2022 financial year.

The growth in operating losses have weighed on the stock price for the last few years and has been fuelled further since interest rates began rising which crippled growth stocks.

Analyst Brent Thill from Jefferies investment bank responded to the news stating that he believes SUMO has a better chance of unlocking shareholder value in private instead of publicly.

Thill thinks that Sumo’s depressed margins and elongated profitability path are currently reflected in the depressed multiple. Jefferies analysts raised their SUMO target price from $8.50 to $11 and remained ‘hold’ rated on the stock following the development.

Fintel’s consensus forecast target price of $11.29 suggests analysts expected SUMO’s share price to trade broadly flat over 2023.

Knowing that private equity firms are interested in Sumo should provide support for the share price until further news is released.

Fintel’s options flow data highlighted a spike in call and put volume on Monday as investors rushed to trade the speculation. The volume was significantly above the usual volume.Sumo will next update investors when providing fourth quarter and full year results in early March.

Management has provided revenue guidance of $77 to $78 million and negative earnings per share of -8 to -9 cents.

For the full year, Sumo will have generated total sales of $298 to $299 million which represents growth of around 23.5% for the year.

This article originally appeared on Fintel

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