After months in the stock market’s graveyard, American Virtual Cloud Technologies (NASDAQ:AVCT) stock has more than doubled in price since Aug. 26. It’s difficult to prove, but it seems as if the meme crowd, who have dabbled in this cloud communications play before, once again sees the opportunity to make a quick buck.
Conversation online about AVCT has picked up considerably during this timeframe. According to WSBTrackers.com, discussion about this stock on Reddit’s r/WallStreetBets made up as much as 5% of total daily activity on the subreddit a few weeks ago.
The question now is whether or not speculators are on the money or barking up the wrong tree. Taking a look at the details with American Virtual Cloud, the answer appears to be the latter. Even if rumors of something big brewing prove true, it’ll likely fail to result in a big windfall for investors.
|American Virtual Cloud Technologies
Why AVCT Stock Is Trending Again
It’s not for certain, but there’s a good chance the latest surge in American Virtual Cloud Technologies (or AVC Technologies for short) has been due to it trending again among active users on r/WallStreetBets and similar meme stock forums.
Although sometimes stocks become “meme stocks” out of left field, with AVCT stock it’s fairly easy to pinpoint what may be making it popular with the meme crowd again. On Aug. 25, AVC Technologies made several big announcements, all in one press release. Along with changing up its management team and corporate board, the company announced its plans to review “strategic alternatives.”
In other words, the exploration of a possible sale/merger. As shares have fallen nearly 97% from their debut price, some may have read this press release, and assumed a takeover (at a big premium) was just around the corner. This isn’t the first time AVC Technologies has been talked about as a takeover stock.
As InvestorPlace’s Chris MacDonald discussed earlier this month, the company received a share buyout offer back in 2021, which was rejected. Still, even as strategic buyers may want to still put in an offer, this may not translate into big gains for shareholders.
Another $9 per Share Bid? Don’t Count on it
If a buyer was willing to pay $9 per share for the company eighteen months ago, there’s a buyer out there willing to acquire AVC Technologies for well above the current AVCT stock price, right? Not so fast.
First off, this $9 per share bid came at a time when AVCT had a far lower share count. In early 2021, the company only had 19.75 million shares outstanding. Today, it has 140.3 million shares outstanding. To cover its cash burn, AVC Technologies has issued more stock resulting in heavy shareholder dilution.
Adjusting for the changes in share count, the offer price for the 2021 takeover bid was $177.75 million, not $1.262 billion, or around 29 times the company’s current market capitalization. Beyond AVC Technologies’ underlying value dropping on a per share basis, it’s also likely dropped on an overall basis.
The massive jump in interest rates since 2021 has materially affected the valuations for businesses like AVCT, valued mostly on future growth. To make matters worse, it’s debatable whether this company remains in high-growth mode. This year, it has reported lower revenue, and higher operating losses, compared to 2021.
The Bottom Line on AVCT Stock
All things considered, it’s hard to see a strategic or financial buyer swooping in and buying out AVC Technologies at a big premium. As detailed above, dilution has made this company less valuable on a per-share basis.
Changing market conditions, and AVCT’s own worsening fundamentals, have made the company less valuable on an absolute basis. The potential upside from a takeover bid is significantly less than some commentators online may suggest.
Matched with this relatively-low upside is high downside risk. Still burning through cash, it is very likely the company will continue to dilute existing shareholders. Interest rates keep rising as well. Both these factors point to further declines for the stock.
Consider recent meme chatter as little more than speculative noise. Based on the facts, the best move with AVCT stock is to avoid it.
AVCT stock earns a D rating in my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.