Shares of business spend management firm Coupa Software (US:COUP) ended the week with a bullish 36% rally after speculation in the media suggested management held talks with private equity firm Vista Equity.

The M&A interest comes after COUP’s share price has fallen more than -60% over 2022 after peaking above $300 in early 2021 during the pandemic. Following the strong rally during the week, COUP’s market capitalisation has recovered to $4.75 billion.

The original story, leaked by Bloomberg, reported that Coupa had been working with an adviser to discuss a potential transaction with the private equity firm. The reports suggested that private credit lenders could provide financing for the transaction.

The speculation suggested that other suitors may also be interested in making a deal with COUP that could include software giants SAP (US:SAP) or Oracle (US:ORCL).

Analyst Joshua Reilly from Needham & Co told investors he believes the current valuation of around ~$60 is too cheap given recent transactions in the sector and given Coupa’s strong competitive positioning. They believe a takeover offer would need to be near their $90 target valuation around 9x forecast 2024 sales. Needham remains ‘buy’ rated on the stock.

On average, COUP has a consensus ‘hold’ recommendation in the market with an average $71.40 target price suggesting ~14% upside to the closing share price on Friday. Many analysts in the market remain concerned about COUP’s valuation.

While no transaction is guaranteed from the discussions, a deal if attractive for investors may be announced at the same time as Coupa’s third quarter results date, scheduled for the 12th of December post market close.

Fintel’s platform analysis of the underlying options market for COUP suggests that investor sentiment has turned from bearish to bullish over the last 6 months. This is explained by a Fintel put/call ratio of 0.70 which tells us that bullish sentiment from call option demand significantly outweighs bearish sentiment from put demand.

The put/call ratio is determined by analyzing all put and call interest in the market for a stock over time with values towards 0 indicating stronger bullish sentiment as it means call open interest carries greater weight than put interest.

This ratio has retraced from above 1.50 in March of 2022 when put open interest outweighed call open interest by 50% and has gradually reversed over the months with the weakening share price.

Third quarter results preview:

Coupa Software’s management provided guidance for Q3 at the previous result that included expectations that they would generate sales between $211.0 to $214.0 million. The street is forecasting the result to come in around $213.5 million towards the top end of guidance.

Subscription revenues are expected to make up $194 to $196 million, while professional services and other revenues are expected to account to around $17 to $18 million.

Coupa expects to generate positive Non-GAAP income from operations between $14.0 to $16.0 million equating to net income per share between 8 to 10 cents. Consensus forecasts from the street are expecting COUP to report 10 cents per share at the top end of the range.

This article originally appeared on Fintel

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.