Square can buy Credit Karma Tax, and Intuit can buy the rest. Hooray?

What happened

Shares of Square (NYSE:SQ) stock surged 4.9% in Wednesday afternoon trading, as of 1:40 p.m. EST, after the company announced it has reached a definitive agreement to acquire the Credit Karma Tax unit of consumer credit report provider Credit Karma.

So what

Square will acquire the free tax-filing service and add it to its own Cash App subsidiary in a deal valued at $50 million, cash. In a statement, Square explained that its new acquisition will expand Cash Apps diverse ecosystem of financial tools -- which currently includes peer-to-peer payments, Cash Card, direct deposit, as well as fractional investing ... giving customers another way to manage their finances from their pocket.  

In so doing, Square will also clear the way for Intuit (NASDAQ:INTU) to proceed with its own planned acquisition of the rest of Credit Karma. The U.S. Department of Justice had been holding up this latter acquisition, telling Intuit it could acquire Credit Karma, but only if the latter first divested its tax-filing business.  

Wall

Image source: Getty Images.

Now what

This is good news for both companies. But is it good enough news to justify investors valuing Square at roughly $3.7 billion more in market capitalization today than the stock was worth yesterday? All because of a $50 million acquisition to the business?

I dont think so. And with Square stock now valued at a staggering 317 times trailing earnings, I think Id be more inclined to use todays share price spike as an opportunity to exit Square stock than to buy any more.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuit and Square. The Motley Fool has a disclosure policy.

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