Tech-sell off explained

Tech stocks are seen as growth stocks with an element of added risk. Due to recent macroeconomic headwinds such as soaring inflation and rising interest rates, investors have turned towards safer defensive options. This has meant many tech stocks have suffered massively.

So let’s take a closer look at one tech stock I believe could be a shrewd addition to my holdings. As a quick reminder, Avast is a cyber security business that adopts cloud-based and data-driven approach to offer security solutions for home and business users.

So what’s happening with Avast shares currently? Well, as I write, they’re trading for 717p. At this time last year, the stock was trading for 582p, which is a 23% return over a 12-month period. The shares spiked this month when the Competitions and Market Authority (CMA) cleared tech giant Norton Lifelock’s acquisition of Avast for over $8bn. Both firms have different specialties and envisage capturing further market share in a competitive marketplace through the deal.

The investment case and my verdict

So let’s look at some bull and bear aspects of Avast shares. I’ll start with some positives.

First off, the deal for Avast to become owned and operated by Norton, is a big deal. This is because Norton is one of its direct competitors but also offers it another layer of diversification as well as further profile and presence. Norton specialises in other aspects of cyber security compared to Avast and is much bigger in stature. All this could boost performance and returns, in my opinion.

Next, Avast has a good track record of performance growth in recent times. I am aware that past performance is no guarantee of the future. However, looking back, I can see that it has grown revenue and gross profit for the past four years in a row.

Finally, Avast shares would boost my passive income stream through dividends. At current levels, a dividend yield of 2.5% is enticing to me. I am aware that dividends can be cancelled, however.

So to the bear case. Competition in the cyber security sector is intense. This could hinder any growth for Avast, and impact any returns I hope to make. In the CMA’s report, it said it cleared the takeover due to no competition concerns. This was primarily linked to Microsoft’s evolving cyber security products. Other major players in the market could have a say in Avast’s performance moving forward. One name that springs to mind is McAfee.

Overall I’m buoyed by the takeover that I believe could take Avast to new heights. Despite the shares jumping due to the CMA green light, I still think they could climb further. For this reason, I would be willing to buy the shares for my holdings. In addition to this, the passive income opportunity helps me build an investment case too.

The reason for this is that the FTSE 100 has been propped up by gains from a handful of its largest members, such as Shell and BP. Elsewhere, most stocks have been falling. In this piece I want to look at three big losers that I’m thinking about buying for my portfolio.

The right medicine

Generic medicine specialist Hikma Pharmaceuticals (LSE: HIK) has fallen by 35% over the last year. The company recently also lost its chief executive, Siggi Olafsson, who quit shortly after Hikma issued a profit warning due to a delay in the launch of a new product.

It’s disappointing, but these things happen. Looking beyond this, I don’t see too much wrong with Hikma’s business. The company’s earnings per share are still expected to rise by 8% this year and its operating margin should stay above 20%.

The main concern I have is that Hikma’s performance could disappoint again later this year. That might be one reason for Olafsson’s departure.

However, with Hikma shares now trading on less than 10 times forecast earnings, I think the valuation probably offers a margin of safety. Hikma is on my list of stocks to buy this summer.

This FTSE 100 stock is getting dropped

My next choice is television group ITV (LSE: ITV). This unpopular stock has fallen by 45% over the last 12 months and is going to be demoted to the FTSE 250 later in June.

ITV shares have slumped due to the company’s decision to increase spending on its streaming services. A new ITVX service is due to replace ITV Hub later this year.

To me, this seems like a no-brainer. Television is moving online, and the UK’s biggest commercial broadcaster needs to move with the times.

ITV has increased spending on IT and programme content to support these changes. That will cause a slump in profits this year. CEO Carolyn McCall expects this spending to deliver future growth. But we can’t be sure of this.

However, with ITV shares now trading on five times earnings and offering a well-supported 7% dividend yield, I’m still thinking about adding to my existing holding.

A special situation

My final FTSE 100 share could soon disappear. Cybersecurity group Avast (LSE: AVST) agreed a merger with US rival Norton LifeLock in October last year.

Avast’s share price hit 650p when the final deal was announced. But the shares have slumped to under 500p since March, due to an ongoing competition investigation that could halt the deal.

This fall means that Avast shares are now at the same level they were at before merger rumours began last summer. The current price looks reasonable to me and I like this business, so I’m thinking about buying the shares.

My only concern is that there might be a third option I haven’t thought of that results in a worse deal for shareholders. I can’t see what this might be, but it’s impossible to rule out at this time.

But since then, many top tech stocks have plummeted. In 2022, shares of Meta, Amazon, Google, and Apple are down 41%, 33%, 20%, and 19% respectively. And some analysts are already calling this the next big dotcom crash. 

However, I think this viewpoint is reactionary and shortsighted. The tech market has changed dramatically since the last big crashes in 2000 and 2008. Most major tech companies are mature businesses now, with huge order books and stable revenue streams. And there are several blue-chip tech stocks that present incredible value for my long-term portfolio. Here I look at two companies on my watchlist to invest £1,000 in the coming months. 

Semiconductor supergiant 

Intel Corporation (NASDAQ: INTC) is the world’s largest manufacturer of semiconductor chips. And since 2020, a huge semiconductor shortage has crippled production in over 150 industries across the world. A confluence of macroeconomic factors has hit the industry hard and companies are struggling to meet growing demand.

And I think the tech crash, coupled with processor demand, make Intel a very attractive value investment right now. At US$43 per share, the company is trading at a price-to-earnings (P/E) ratio of 7.2 times with a 3.3% dividend yield.

Over the last decade, Intel has lost out to companies like AMD. But the company might be making a huge comeback. Intel’s latest generation of processors looks excellent. Its 12th gen series has managed to beat competitors in most benchmarking and performance tests.

This has increased Intel’s demand in the market and this is expected to be reflected in this year’s earnings. First-quarter 2022 revenue at $18.4bn exceeded January estimates. And the company is already ramping up production efforts to meet the demand.

With warnings of a recession and increasing inflation, personal computer upgrades and sales could drop. And this is a huge concern for the tech sector right now. But, Intel is an industry leader and looks like one of the best value tech stocks for my portfolio right now. 

Blue-chip UK tech stock 

Avast (LSE:AVST) is one of the largest tech stocks in the UK and is part of the booming cybersecurity industry in the country. The company is one of the most recognised free antivirus programs in the market today. Avast has a huge user base and brand visibility and is branching off into interesting areas right now.

The cybersecurity firm works on a profitable freemium business model. Its new Avast One app includes a firewall for mobile security, a virtual private network (VPN), and protection against crypto hacking attacks.

Avast’s £6bn deal with Norton is an area of concern for me. After the UK-based company accepted the bid, the government put it on hold for six months now citing “competition concerns“. This caused the tech stock to fall sharply and the future of this deal is still uncertain. 

But this also means I can snap up an exciting company at an attractive price. I would consider this tech stock for my portfolio if it falls below 400p. As it is an industry leader offering an increasingly important product, Avast shares look like a great bargain option. 

I’ve been bullish on the cybersecurity sector for years now, and with cyberattacks currently a major threat worldwide, I think it’s a good time to revisit the theme. With that in mind, here’s a look at how I’d invest in UK cybersecurity stocks today.

UK cybersecurity stocks

If I was looking for a ‘pure-play’ UK cybersecurity stock, I’d start with Avast (LSE:AVST). It’s one of the world’s largest associated companies with over 400m users globally. It has a track record of consistent growth, a solid balance sheet, and a high level of profitability.

Last year, Avast received a takeover offer from rival giant NortonLifeLock (which indicates it’s doing something right). However, UK regulators recently put the deal on ice, due to concerns it could reduce competition in the sector. As a result, Avast’s share price has fallen.

I’d snap up AVST shares while they’re down. After the pullback, the stock’s price-to-earnings (P/E) ratio is under 20. That valuation is attractive, to my mind.

It’s worth pointing out that there are a number of other pure-play cybersecurity stocks on the London Stock Exchange including NCC Group, Kape Technologies, and Darktrace.

These businesses are not as profitable as Avast however. Darktrace is not profitable at all. So I’d be less inclined to buy them for my portfolio.

Cybersecurity exposure

Another way to play the cybersecurity theme is through IT infrastructure companies. These are companies that provide technology solutions for other businesses.

Some examples here are FTSE 250 firms Softcat and Computacenter. Both of these companies help public and private organisations with their IT services, including cybersecurity.

These stocks have a lot of appeal, to my mind. Both look set for solid growth in the years ahead as businesses undergo digital transformation. If I had to pick one today though, I’d probably go with Computacenter. It has a lower valuation than Softcat.

Defence companies can also provide some exposure to cybersecurity. BAE Systems, for example, is a leading provider of cyber, intelligence, and security capabilities. This is another stock I’d consider for my portfolio. However, it has had a good run recently, so I might wait for a pullback before buying.

A dynamic industry

It’s worth pointing out here that investing in cybersecurity can be a bit tricky. This is because cyber threats are continually evolving. Due to the dynamic nature of the industry, it can be hard for companies to build durable competitive advantages. As a result, individual stocks quite often underperform at times.

To get around this, I’d consider investing in a cybersecurity-focused exchange-traded fund (ETF) that provides exposure to many different stocks. One example of such an ETF is the Legal & General UCITS Cyber Security ETF. This would provide me with exposure to a wide range of cybersecurity stocks (including stocks listed internationally), and therefore reduce stock-specific risk.

With that in mind, let’s dive into the realm of tech stocks to discover what these businesses do and explore some of the UK sector leaders today.

What are tech stocks?

As the name suggests, tech stocks — or shares as they’re often referred to in the UK — can be any business providing a technological product or service. The most common form is a software solutions enterprise. However, this is only the tip of the iceberg.

Electronic device manufacturers, cloud infrastructure providers, content streaming groups and digital payment platforms are all prime examples of technology businesses. And that’s despite the fact that each operates in different industries with contrasting target audiences.

The barriers to entry for this sector aren’t exactly high. Anyone with a laptop, an idea and a strong determination can start coding with next to no budget. In fact, that’s precisely how some of the biggest tech stocks today got started.

As a result of this abundance of competition, these businesses are often rigorously investing in research and development (R&D) as well as marketing to the point that most stay unprofitable for many years. That makes them highly dependent on external financing typically raised through equity issues even after their initial public offering (IPO).

Needless to say, tech shares carry a higher risk profile than the average business. But if we travel across the pond and look at the S&P 500, the vast majority of its returns in the last decade have been driven by tech stocks like Apple, Microsoft, Amazon and Meta (Facebook). In other words, the elevated risk comes with an even more considerable reward potential.

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Top tech shares in the UK

Here are five leading UK tech shares in order of market capitalisation.

Ocado Group

Ocado Group is best known for being a key player in the online grocery space. The business runs a website that allows consumers to order groceries from the comfort of their own homes. And during the height of the pandemic, demand for such a service skyrocketed.

This e-commerce operation remains a core part of the business today. However, management is paying far more attention to the lesser-known side of the company – its robotics platform.

What has helped make Ocado’s online grocery store a success over the years is its ever-growing investments and research into robotic automation. Today, almost every aspect of its fulfilment centres are run by machines, drastically reducing labour costs and accelerating the process of packaging customer orders for delivery. 

The tech stock is now offering its warehouse automation platform to other retailers under the name Ocado Smart Platform (OSP) for some pretty substantial fees. But by providing significant cost savings, the firm has secured contracts with companies like Morrisons in the UK, Kroger in the US, and a handful of others.

Key Metrics:

• Market Cap: £8.94bn (as of 21 Mar 2022)
• Average Daily Volume: 2.05m
• HQ: Hatfield, UK
• Cash/Debt: £1,470m / £1,828m (as of 28 Nov 2022)

Avast

Avast is a tech stock that operates in the currently surging cybersecurity industry. The group offers a portfolio of anti-virus and security solutions suitable for personal computers as well as enterprise data centres.

It’s probably best known for its free personal anti-virus solution. The freemium technology protects personal computers from most threats. But its capabilities can be further extended through paid upgrades like its Cloud-Backup service, which prevents data loss in the event of a ransomware attack.

Management’s strategy of offering this free solution has filled up a massive pool of 435 million monetisable users, which it can directly target with marketing campaigns and promotions. And it’s an advantage that rival group NortonLifeLock is currently trying to get its hands on through an $8.6bn merger. But the deal is currently receiving antitrust regulatory pushback, which could halt it dead in its tracks.

Key Metrics:

• Market Cap: £5.89bn (as of 21 Mar 2022)
• Average Daily Volume: 4.42m
• HQ: London, UK
• Cash/Debt: £435m / £838m (as of 31 Dec 2022)

Wise

Wise is more commonly known by its former title TransferWise, and is a provider of digital financial solutions serving over 10 million customers worldwide. What started out as a simple money transfer business has evolved into a complete digital banking solution.

Using the tech stock’s platform, users can send and spend money abroad to 80 different countries, as well as receive and store payments in multiple currencies. Developers can integrate its payment technology into their own applications through APIs, and businesses can take advantage of its agile banking services.

Of course, all of these solutions can be achieved through traditional banks. However, the cost of doing so is significantly higher and is far less efficient. For example, a conventional international bank transfer can take three working days. Wise can do it almost instantly for a fraction of the cost, in most cases.

Key Metrics:

• Market Cap: £5.72bn (as of 21 Mar 2022)
• Average Daily Volume: 1.48m
• HQ: London, UK
• Cash/Debt: £5,392m / £98m (as of 31 Dec 2022)

Darktrace

Similar to Avast, Darktrace is a cybersecurity enterprise. However, it’s strictly business-facing and takes a different technological approach to fight cyber threats. Rather than taking the traditional route of hard-coding solutions, the tech stock’s software suite is powered by machine learning.

Whenever encountering a new threat, an AI programme analyses the attack to automatically derive a solution. Once the threat has been dealt with, the platform knows how to prevent such an attack again in the future, making its defensive capabilities grow stronger with each encounter. In other words, the software behaves similarly to a self-teaching immune system for computers.

The firm is still a relatively new entrant into the cybersecurity industry. But it’s already serving over 6,531 clients worldwide, protecting almost all aspects of their digital operations including cloud servers, email, internet of things (IoT) devices, and private networks.

Key Metrics:

• Market Cap: £3.13bn (as of 21 Mar 2022)
• Average Daily Volume: 3.43m
• HQ: Cambridge, UK
• Cash/Debt: £366m / £33m (as of 31 Dec 2022)

Kainos

As tech shares go, Kainos is pretty under the radar. The company is an expert in executing digital transformations within businesses and governmental agencies. This involves moving from traditional systems to modern-day cloud-based and AI-driven automation platforms.

The tech stock also provides a suite of consulting and software solutions to further improve talent management courtesy of its partnership with Workday. Clients can use these services to manage operations, payroll, recruitment, security, and even its financial accounts.

With companies and governments worldwide looking to reduce spending and improve operational efficiency, Kainos has had little trouble attracting customers. And despite its relatively small size, the group has secured contracts with the NHS, the Home Office, and even the Bank of Ireland.

Key Metrics:

• Market Cap: £1.75bn (as of 21 Mar 2022)
• Average Daily Volume: 231,710
• HQ: Belfast, UK
• Cash/Debt: £80m / £3.22m (as of 31 Dec 2022)

Are tech stocks right for you?

The UK tech sector isn’t as closely followed as its counterpart in the US. Yet that doesn’t mean there aren’t excellent opportunities for investors willing to take on additional risk.

Just looking at these five tech stocks, an investor who bought equal positions in each over the last half-decade is now enjoying a 196.8% return! That’s a 24.3% annualised return, smashing the FTSE 100 by a landslide.

But it’s not been a completely smooth ride. For example, investors who bought shares of Wise in its IPO last year are currently enduring a 44% loss.

Risk comes with the territory. And that means tech stocks aren’t suitable for all investors. But for those keen on reaping these potential returns, a diversified approach may be a sensible route. By buying shares consisting of promising UK tech companies, the odds of buying into a winner go up and should help irradicate the lacklustre returns of the losers.

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FTSE 100 newbie

Avast operates in the lucrative and burgeoning cyber security market. It is known for its free antivirus software it offers to consumers for their personal use. It also offers paid complex bespoke security solutions for home and business users. Avast adopts cutting edge cloud-based and data-driven technology in its solutions.

I consider Avast a relative newbie to the FTSE 100. After all, it only listed on the London Stock Exchange in 2018. To be promoted to the premier index after such a short spell on the whole is impressive.

As I write, shares in Avast are trading for 604p. At time last year, the shares were trading for 523p, which is a 15% return over a 12-month period. The shares have surpassed 2020 market crash lows and are currently trading at all-time highs.

Drawbacks to investing

Competition in the tech market is fierce. Although Avast is a company with its own track record and history, it is perhaps not a well known brand, compared to some of its competitors. One name in the same market that pops into my head is Kaspersky. Brand recognition is extremely important. Avast could build this up in 2022 and beyond but it could offer competitive advantages here and now.

The Avast share price is currently trading at all-time highs. I am usually wary of this with FTSE 100 stocks when I am bullish on a stock. Is the growth priced in? Could there be a share price dip on the back of any news? I will keep an eye on developments.

Why I like Avast

I find it rare that when someone establishes a business, they are still very much hands on involved in the business nearly 25 years later. This is the case with Avast CEO Ondrej Vlcek. The firm has recently been taken over by competitor NortonLifeLock in a deal worth $8bn or so. This new ownership could catapult Avast to new heights with access to new customers and markets. One of the reasons I can’t ignore Avast is its performance and growth record. I understand past performance is not a guarantee of the future, however. I can see that revenue and operating profit have increased year on year for the past four years.

As well as Avast’s performance and new ownership, it also pays a dividend. This helps me make a passive income if I own shares. As I write, its dividend yield stands at 2%. This is just below the FTSE 100 average of 3%. In addition to this, the shares look good value with a price-to-earnings ratio of 29.

Overall I do believe Avast is a top tech stock on the FTSE 100. It has been taken over by a larger competitor but looks like it will operate as its own company. Avast has a good track record of performance and has carved its own corner in a lucrative market. I only see Avast moving on an upwards trajectory in 2022 and beyond which could offer me a lucrative return.

I’m going to review the three best stocks of last week to see if any of them are still buys for my portfolio.

The FTSE 100 leader of last week

The stock that outperformed all others last week was Royal Mail (LSE: RMG). I last wrote about RMG here. As a quick recap, I thought the company was a great way to gain exposure to the e-commerce market, was attractively valued and with a good dividend yield.

Well, after a near 15% rise in the share price last week, is it still a buy?

Royal Mail’s half-year report was released last week, and it was very good in my view. Revenue continued to grow and adjusted operating profit rose to £404m, up from £37m from the equivalent period a year ago.

There was also a commitment to return £400m to shareholders; £200m in a share buyback to commence immediately; and a £200m special dividend to be paid alongside the interim dividend.

There are still risks to consider here. Staff shortages across the economy might make it harder for RMG to hire seasonal workers over the festive period. Added to this is wage inflation that may impact margins. I still think Royal Mail is a buy for my portfolio though, based on these results.

A FTSE 100 takeover target

The second-best performer was Avast (LSE: AVST). The share price rose about 6.5% last week. There isn’t much to consider here because the company is undergoing a merger negotiation.

The cybersecurity software company announced in July that it was in advanced discussions over a possible merger with NortonLifeLock. The share price rallied over 18% on the news of the potential deal.

One further development last week was announced regarding satisfying a key US regulatory condition. This made the merger more likely to be approved, so the share price rallied.

I don’t have an interest in buying the shares here. The merger is very likely to go through, and I don’t see a competing bidder getting involved at this stage. 

A leading technology stock

The final top performer in the FTSE 100 was Sage (LSE: SGE). The share price rose over 6% on the week. The company has performed well so far this year, with the share price up 37%. But over recent years, Sage and its accountancy software have been subject to intense competition. This has meant the share price hasn’t progressed too far in about five years.

The company released its full-year results last week, which caused the share price to rise. Recurring revenue increased ahead of its initial expectations, and the business ended the year with strong momentum. Guidance for next year is for recurring revenue to grow again by about 8% to 9%. This is respectable growth, but I’m not sure it’s high enough given that the price-to-earnings ratio is above 34.

I view Sage as a quality business, with high margins. But I’m wary of intense competition in its sector. I’m putting it on my watchlist for now.

FTSE 100 pick

Avast is a specialist in IT cyber security. It is renowned for its free antivirus software for domestic home computer users. It also offers paid bespoke and much more complex security solutions for home users and business users. Avast adopts the latest in cloud technologies and real time data to assist its hundreds of millions of users worldwide.

It is worth noting that Avast only floated on the London Stock Exchange in 2018. I cannot recall many of my best shares to buy now having such a limited time on the LSE. As I write, shares are trading for 586p per share. In the past six months, Avast has seen its share price increase by nearly 40% to current levels from 420p per share in March. It is currently trading at close to all-time highs and I believe this upward trajectory could continue.

3 reasons why

I have pinpointed three reasons why I like Avast as one of my best shares to buy now from the FTSE 100:

1. The founders of Avast are still involved in the business to this day. Current CEO Ondrej Vlcek has been with the 30-year-old firm for more than 25 years. He also owns shares. I particularly like when insiders buy shares as it is a sign of confidence by those who know the business best. In total, 30% of the stock is owned by the founders.
2. Performance has remained consistent and growth year-on-year is pleasing to see for a potential investor such as myself. I see that revenue and profit have increased year-on-year since 2017 including 2020, which was a difficult year for all due to the pandemic. This growth pattern and trajectory could continue based on plans in place to increase presence and offering in my opinion. I do understand that past performance is not a guarantee of the future.
3. Based on AVST’s current price and a price-to-earnings ratio of just less than 30, the current share price represents value to me. The price has consistently increased since it joined the FTSE 100. Avast also offers a dividend which would help me make a passive income.

The best shares to buy now have risks too

The primary risk associated with Avast for me is its competition and place in a cut-throat market. Avast is a small player in a lucrative market dominated by larger, better known firms. Some that spring to mind are Norton and Kaspersky. These rivals’ brand recognition and size may affect Avast’s future growth plans and in turn, its financials.

Overall, I believe Avast is one of the best shares for me to buy now on the FTSE 100. It has a good track record of performance and growth. I believe at its current price it could be a good opportunity to add shares to my portfolio at a fair price and make me a small passive income. I would consider adding shares. 

Is now a good time to buy stocks?

There are some businesses that have a positive outlook and are tempting from an investment perspective. Others do not possess the same outlook and are ones I would avoid. 

There are external factors I consider when purchasing stocks. These include the current state of the economy, the pandemic, political factors, and looking ahead.

For example, I feel buoyed by the fact that successful vaccination across the country could result in increased movement, trade, and spending. In addition to this, previously closed industries such as travel and entertainment are beginning to reopen. Furthermore, new industries have thrived since the pandemic began. These include e-commerce and technology.

The risk of investing in UK shares currently is that there is the threat of new strains of the coronavirus. Next, FTSE indices have already seen a rise since market-crash lows so I must consider if they are due a fall. Finally, I think the effects of Brexit will affect the economy and investment viability.

How I invest in UK shares

Firstly, context is important. For example, just because something is not cheap doesn’t make it unattractive. We are in for another period of near zero interest rates, low growth and low, or no, inflation. In this environment, businesses in growing markets will do well. So, something that is considered expensive now may look cheap in a few years time. 

Research and due diligence are everything. I learnt this from Warren Buffett. I don’t have a complex formula or theory when I invest for my portfolio.

Finally, I believe investing is for the long term. I understand shares can fall and rise and I need to ensure I understand the ups and downs of investing before I part with my hard-earned cash.

Two picks I have considered recently

One UK share I like is Avast (LSE:AVST). The burgeoning cyber security firm has grown massively in recent times. It is being courted by an American rival for a takeover and therefore its share price surged. The risk with Avast is that all the takeover news is speculation so far. Furthermore, Avast is a small fish in a big pond, which means it needs to work harder against bigger firms and will always be susceptible to being swallowed by a larger outfit.

Next, money transfer services provider Wise (LSE:WISE) listed in the FTSE a few weeks ago to much fanfare. It was the largest ever public listing of a UK tech business, with a hefty valuation of £8.75bn at 880p per share. The Wise share price has increased over 9% since that listing. Wise’s ability to offer quick cheap transfer solutions have helped it amass millions of customers. The risk with Wise, however, is its reliance on payment partners such as Visa, to facilitate its offering. If such a partnership were to cease or stall, Wise could see its share price tumble.

Reasons for the Avast share price jump

The main reason for the jump last week was confirmed speculation of a potential buyout by NortonLifeLock. Norton is a large US-based security software company. Even in the UK, it’s well known. In fact, I’ve used Norton software packages for years. 

Avast is a little less well known in the software space. However, the Czech-based company is a member of the FTSE 100, highlighting the size of the market capitalisation. It’s main antivirus software is paired with Microsoft Windows.

Although it’s been confirmed that Norton is in advanced talks to buy Avast, its statement said that “there can be no certainty that any firm offer will be made”. This is hardly a surprising statement to come out with. Obviously comments will downplay the deal until a bid has been approved. 

The bid has to be confirmed either way by August 11. Rumours are that the bid could be in the region of $8bn to $10bn. This is why the Avast share price rallied so hard. At the current price of 609p, it gives a market capitalisation of £6.3bn ($8.7bn). This puts it into the ballpark range of where a potential offer price would land.

Should I buy?

I recently wrote about a similar story with the Morrisons share price. The supermarket saw a large pop in its price following a potential buyout offer. In that case, I decided against investing as I felt all the good news was now priced in.

For the Avast share price, I don’t think this is the case. A key difference here is that Norton and Avast are very similar software companies. They complement each other well, so I think there are a lot of synergies and benefits from coming together. In effect, all the best practices can be shared, which is a net benefit. Products can also be cross-sold and client relationships shared.

It’s not certain what form the buyout might take or how Avast shareholders would directly be impacted. This uncertainty isn’t great for a potential investor like myself. Aside from this, the big risk I see is that if any deal falls through, I’m left holding shares when the Avast share price is at all-time highs.

During the stock market crash last March, the Avast share price traded down to around 300p. At 609p, it’s a big risk if things don’t come off.

On balance, I would look to invest now, but only with a small amount of money. The potential deal would offer great benefits, but at this stage I don’t even know if a deal will be struck.