Why Genomic Health, Inc. Skyrocketed Today

What happened

Genomic Health (NASDAQ: GHDX) is up 21% at 1:12 p.m. EST Thursday after Bloomberg reported that the cancer test company is contemplating selling itself after receiving takeover interest.

So what

While it's always possible that someone at Genomic Health has gone rogue, telling Bloomberg things that aren't actually true, it's more likely that the rumor of takeover interest has some basis to it. Companies often leak information of a potential suitor to the media -- sometimes through their investment banker -- to drum up interest from other potential acquirers. Even if no companies bite, the current suitor may raise the bid on just the threat of a bidding war.

Having the news out there also helps Genomic Health's board of directors gauge investors' thoughts on a sale. Management can't just call up investors and say, "We've got an offer, what do you think of it?" without running into insider trading issues. But once the rumor is out in the public, investors can call management expressing their feelings.

With Genomic Health approaching profitability as it gains reimbursement for its breast and prostate cancer tests, now would seem to be a good time for a potential suitor to acquire the company. And even after today's jump, shares aren't quite as high as they were in the biotech bonanza of late 2015. Genomic Health is arguably much more valuable now even if investor sentiment isn't as high.

Doctor working at a computer

Image source: Getty Images.

Now what

There's not much long-term investors can do but sit and wait to see if management can spur an acquisition that's worthy of selling shares. Without any more information, buying today is more akin to gambling than investing.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. The Motley Fool has a disclosure policy.