Here’s why the Jumbo Interactive Ltd share price has gone gangbusters this week

The Jumbo Interactive Ltd (ASX: JIN) share price will be one to watch today after reports emerged yesterday suggesting that lotteries sector disrupter Lottoland has its eyes on the company.

According to the Australian Financial Review, 2.25 million Jumbo Interactive shares changed hands after the market closed on Wednesday at a 28% premium.

While Lottoland has not commented on the speculation, the Gibraltar-based company is widely believed to have been interested in getting a piece of Jumbo Interactive for some time.

As the purchase represents a 5.1% stake in the company, within the next few days the buyer’s identity will be revealed when a substantial shareholder notice is filed.

The market appears to think it is Lottoland and also that it could potentially be the start of something bigger. Jumbo Interactive’s shares rocketed 15% higher on Thursday, reaching a three-year high of $2.30 in the process.

Should you invest?

I would never recommend investing in a company purely on speculation of a takeover approach. Whilst you might do well if one is made, if a takeover offer fails to materialise a company’s share price can fall heavily.

Furthermore, I would be hesitant to invest in Jumbo Interactive at this point due to the lack of certainty with its agreement with Tatts Group Limited (ASX: TTS).

Jumbo Interactive operates the OzLotteries website under license from Tatts. At present its licenses for Victoria and New South Wales have expired and can be cancelled with 30 days’ notice. Elsewhere its licenses for South Australia and the Northern Territory both expire in September 2017.

While the company is doing a stellar job of operating the OzLotteries business, I am concerned that Tatts could decide to take it in-house later this year.

As the company is almost entirely dependent on the OzLotteries business, this would be a catastrophe. Because of this I would caution against an investment until a new agreement is signed with Tatts.

Until an agreement is signed I think investors would be better off snapping up these high-quality blue chip shares. Thanks to their enormous potential I believe they will smash the market over the next few years.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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