Why Kraton Corporation Stock Just Popped 15% | The Motley Fool

What happened

Shares of chemicals company Kraton Corporation (NYSE:KRA) skyrocketed in afternoon trading Tuesday, rising 14% through 2:25 p.m. EDT after Reuters reported that the company may be for sale.

As Reuters reports in an “exclusive” story, Kraton has hired JP Morgan Chase to advise it on how to respond to “acquisition interest from peers and private equity firms.”

Image source: Getty Images.

So what

Kraton, however, is keeping mum. The company hasn’t yet put out a press release responding to the rumors that it’s for sale, nor did it “immediately respond to a request for comment.”  

Nevertheless, Reuters believes there’s good reason to believe that the company is for sale, citing Kraton’s 13% decline in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the most recent quarter. Reuters also reported that “inflationary pressures weighing on its profit margins” may have management thinking that now is a good time to sell the business before things get any worse.

Now what

I can’t argue with the logic. Including today’s gain, Kraton stock has roughly doubled in value over the past year, rising 92% over the last 52 weeks. If business is turning bad, however, then outside investors may soon lose interest in the company. Selling Kraton to a strategic buyer now could be a good way for management to help “lock in” shareholders’ winnings before sentiment turns against the stock.

Best news of all: Thanks to today’s surge in share price, shareholders now have the option to cash out even before a sale of the entire company is confirmed!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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