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Yesterday, a rumor was spread that Cisco (NASDAQ:CSCO) might be looking to take over Acme Packet (NASDAQ:APKT). This caused unusual price movement in APKT. This unusual price movement caused the rumor to spread to more widely-read financial news sources, which caused the stock to rocket even more, over 10% on heavy volume.

After researching the situation, I believe the rumors are not true, and it has created a good shorting opportunity in the stock.

"At 10:58AM, the Acme Packet takeover rumor was spread around trader forums like StockTwits," said Lon Juricic, the President of StreetInsider.com. "Then it spread to more mainstream news outlets. There's no validity to these rumors or a solid quoted source. It was likely started and spread by traders looking to make money on the trade. Takeover hype can be effective because any company can be taken over at any time."

Both Acme Packet and Cisco deny commenting on the rumor.

Cisco buying out Acme Packet doesn't make any sense for fundamental reasons. Cisco has its own delivery network solutions, and is a competitor of Acme Packet. Acme Packet's revenue is declining and it's losing more and more of its market share to competitors like Cisco. Acme Packet has shown no solid signs of turning its business around, so why would Cisco want to purchase a competitor that's losing market share? It probably wouldn't. It would let it struggle and try to steal more market share instead of buying its unpopular products to replace its own.

APKT has gone on a monster rally since the beginning of the month. It's possible that a trader spread the rumor to keep APKT's rally going. Looking at APKT's price movement at the beginning of Wednesday, it looks as though it was trending down. It was originally trading in a $17.75 to $18.00 range.

From a close of $15.64 on August 1st, to $19.80 today, is a rise of 26.6%. This rally has come off of no indication that it is turning its business around. In my opinion, APKT's upswing is mainly from a rallying market, technology in particular, and a short squeeze. There was 7.93 million shares short, 16.5% of the float, reported on August 15th. Fundamentals haven't been good for APKT recently, which is why I don't think its rally will last.

There have recently been several analyst downgrades, and very poor guidance from the company for the full year of 2012. As stated in this Barron's article relating to APKT's last quarter's earnings call:

"For the full year, the company sees revenue in a range of $270 million to $275 million, and EPS of 43 cents to 47 cents. That is below the original forecast of 96 cents to $1 per share offered back on February 2nd. It is also below the average analyst view of $302.6 million and 76 cents for this year."

The Company has since not reported any updates to that guidance. As shown in the above quote, the Company also has a history of guiding too high. It's possible that the Company could underdeliver again upon next quarter's earnings. However, I could guess that the stock could find itself in a downward trend much sooner if it deflates from yesterday's rally.

Disclosure: I am short APKT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Evidence Suggests That Acme Packet's Takeover Rumors Were Fake