I’ve recently been looking into identifying potential takeover targets as possible long trades in this market. But I recently realized that in terms of earnings potential takeover targets are great short earnings plays. This is because potential takeover targets tend to be underperformers in their industries and have much less insider support – two factors that are important for earnings trades.
PagerDuty (PD) showed up on my watchlist for this reason. It has much less insider ownership compared with its sector (11% to 20%), and it has underperformed its sector by roughly 60%.