Elliot Management reveals a huge stake in Dropbox – time to buy?

By:
on Jun 3, 2021
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  • Dropbox popped nearly 4% on Tuesday after news Elliot Management had taken a huge stake.
  • Wall Street Journal said the activist hedge fund now owns more than 10% of DBX stock.
  • This comes after continued speculation of a potential takeover. It could be a good time to buy DBX shares.

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Dropbox Inc. (NASDAQ:DBX) stock soared 3.92% on Wednesday after news broke that activist hedge fund Elliot Management had taken a huge stake. Wall Street Journal reported that the firm now owns more than 10% of the cloud computing company, making it the second-largest shareholder behind CEO Drew Houston. Dropbox has been hitting the spotlight in recent months, with talks of a potential acquisition dominating headlines.

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Dropbox underperforming its peers

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Dropbox stock price has improved significantly since December. However, looking at the performance over the last 12 months, the stock is significantly underperforming compared to its peers. DBX shares are up about 18.30% compared to Salesforce.com Inc.’s (NYSE:CRM) equivalent of 34.08 and NetEase Inc.’s (NASDAQ:NTES) gain of nearly 40%. This makes DBX appear relatively cheaper than its peers. Dropbox trades at a forward P/E ratio of 18.33 compared to CRM’s equivalent of 54.44 and NTES’s 22.94. This is partly why analysts have continued to talk about a potential acquisition of Dropbox. 

Headlines about the DBX acquisition could intensify in the coming months, especially after Salesforce bought Slack Technologies. Another cloud computing company, Cloudera, announced earlier this week that it was being bought by two private equity firms, KKR & Co. and Clayton Dubilier & Rice LLC, for $5.3 (£3.75) billion.

Source – TradingView

Technical overview

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Technically, Dropbox shares appear to be trading within an ascending wedge formation in the 60-min chart. DBX stock has now surged closer to the overbought levels of the 14-day RSI. The stock continues to enjoy strong support from the 100-hour moving average.

Investors can target short-term profits at around $31.51 or higher at $34.85 for long-term profits. Key support levels can be found at $24.53 and $21.47.

Bottom line: Industry consolidation could drive DBX stock higher

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The cloud computing market appears to be rapidly consolidating with several mergers and acquisitions. This could be a catalyst for more returns from cloud computing stocks. Dropbox has underperformed its peers in the last 12 months, which means that it stands to gain the most to match other companies’ performances. And with an activist investor taking a huge stake, you can expect changes to follow. This could be a good time to buy DBX shares.

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