What's Happening in Small-Cap Stocks: The Battle for Wendy's, a Sell-Off in Brazil, Layoffs at Innodata

The Wendy’s burger chain received a $1.4 billion buyout offer from a group of investors led by billionaire Nelson Peltz’s fund. Shares of Brazilian fintech company PagSeguro Digital lost a quarter of their value following the presidential election. Innodata’s stock plummeted amid reports of layoffs and the scaling back of work on one of its projects. Highlights from the small-cap sector for the week of October 26–30 are featured in the Oninvest digest.

A group of investors led by billionaire Nelson Peltz’s Trian Fund Management has offered to buy the Wendy’s burger chain, valuing its equity at approximately $1.4 billion. The price—$7.35 in cash per share—is about 20% higher than the stock’s closing price on October 27. The next day, the chain’s shares rose 15.2% to $7.07.

The consortium also includes the Flynn Group, BlueFive Capital, and Sixth Street Partners. The offer does not obligate the parties to enter into a transaction; it will be reviewed by Wendy’s committee of independent directors.

A shareholder of Blackwells Capital has already spoken out against the acquisition under the proposed terms. He believes the price is too low and accuses Peltz—who chaired Wendy’s board of directors for 17 years—of attempting to capitalize on the consequences of his own mismanagement. In August, Trian had already abandoned its takeover plans amid concerns about the company’s financial performance and stock valuation.

The deal proposal came during a downturn: Wendy’s comparable sales in the U.S. have been declining for six consecutive quarters, according to Blackwells. In the second quarter, they fell by 7%. The company withdrew its full-year forecast and cut its dividends to free up funds for business recovery.

According to MarketWatch, 18 out of 25 analysts recommend holding Wendy’s stock. Three advise buying the stock, and five advise selling it. The average price target of $7.30 implies an increase of approximately 1.2% by the close of trading on October 30.

Shares of the Brazilian fintech company PagSeguro Digital fell 25.2% on the New York Stock Exchange on October 26, to $8.56. The sell-off followed the victory of incumbent President Luiz Inácio Lula da Silva in the second round of the election held on October 25.

The market had expected a victory for conservative candidate Flávio Bolsonaro, who had led in the first round, and had linked a change in government to cuts in government spending and deregulation. After the results were announced, investors began selling Brazilian stocks, bonds, and currency.

However, the election result alone is not a reason to sell PagSeguro, according to Motley Fool contributor Rich Smith. In an October 26 article, he noted that the stock is trading at a P/E ratio (price-to-earnings ratio) of 7.7, while analysts expect earnings to grow by more than 10% annually over the next five years. In his view, this combination makes the stock attractive regardless of who holds the presidency.

Most analysts whose estimates are tracked by MarketWatch recommend holding the company's stock. The average price target of $10.67 implies upside potential of approximately 34% by the close of trading on October 30.

Shares of Innodata, which prepares data and helps clients train AI models, fell 25.3% on the Nasdaq on October 27, to $44.74. This was triggered by media reports of layoffs in India and the Philippines: the cuts affected about 550 employees in India and an unknown number of workers in the Philippines.

According to The Motley Fool, this represents more than 5% of the company's workforce. The layoff notices cited a reduction in project workload as the reason. Innodata has not commented on the reports.

For investors, the main risk is Innodata’s dependence on large customers. In the second quarter, the two largest clients accounted for 71% of revenue: 37% and 34%, respectively. The cancellation of a single major project could undermine growth prospects, according to the TIKR portal.