I have recommended MLNX a couple of times before, and I have predicted a rebound. MLNX is still a very interesting stock, but is currently way overpriced. The stock is currently trading at 35 times EPS, which makes it very risky at this point. On the other hand, this is the mergers and acquisitions gold rush, and Mellanox technologies is a very small company (market capitalization is about $670 million), and could be easily swallowed by a giant such as IBM, HP, DELL, etc… Now the question is in order to assess the upper limit for this stock, how much are these companies willing to pay for Mellanox?

MLNX is currently trading at $19.86, up 25% from last month, it is a profitable and dynamic company, and unlike most companies being bought (remember PAR), the company is actually making money (EPS is $0.57). MLNX’s 52 week high is $27.48, making the company’s market capitalization at peak $927 million ($27.48 x 33.74M shares). A ballpark figure of $1 billion to buy the company (or $29.50 share) will most likely be rejected by Mellanox, especially when the stock is going up fast. Probably the least amount offered (that will be considered by the board) to buy Mellanox will be $1.5 billion, or $44/share, which 230% higher than the current stock price. This may seem like unrealistic but in this day and age, it is not far fetched.

The company fundamentals are great, and mega companies are fighting to acquire these small companies to lower their long term cost. Let’s see where the stock will end in a month for now. I am currently focusing on financials at the moment, but if I had some spare money, I would buy some MLNX (just a few hundred shares), and how knows, maybe my money will double in a month or two. Worst case scenario the stock will retreat to $15.