The WPP Aunz Ltd (ASX: WPP) share price is underperforming today, down 1.43% at the time of writing to 69 cents a share. By contrast, the S&P/ASX 200 Index (ASX: XJO) is having a pretty good day, up 1.01% to 6,846 points.

The catalyst for WPP Aunz's slow show today appears to be the earnings report for the full 2020 calendar year that the company released this morning before market open.

WPP Aunz (the latter stands for Australia/New Zealand) is a public relations company that works with a range of clients and offers tailored solutions depending on said clients' needs.

The company was in the news a few months ago after receiving a takeover offer from its parent company WPP plc (LSE: WPP), for 70 cents a share. That resulted in the WPP Aunz share price shooting up around 85% between 19 November and 18 December.

What did WPP Aunz report this morning?

WPP Aunz reported a mixed bag this morning. The company delivered net sales of $612.3 million, down 14.1% from the $712.5 million reported in 2019.

Likewise, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 32.6% to $61.9 million, down from 2019's $91.8 million.

Translating into earnings per share (EPS), WPP delivered 4.1 cents per share, down from the 6 cents of EPS in 2019.

That translated into a profit before tax of $53 million, down 31.9% from 2019's $77.8 million. Profits after tax were $34.9 million, also a fall of 31.9%  from 2019's $51.2 million.

Surprisingly though, the company's total dividends for the year came to 4.4 cents per share, a healthy bump from the 2.3 cents per share paid out in 2019. That has a lot to do with the sale of its Kantar assets, which facilitated a special dividend payment of 15 cents per share.

WPP Aunz CEO Jens Monsees had this to say on the results:

Our transformation strategy means WPP AUNZ taps further into growing areas of the market like e-commerce, personalised advertising and digital consumer experience…

We now move into the 'strengthen' phase of our transformation strategy…. With our creativity and technology capabilities, we are well-placed to drive growth as the leading creative transformation company in Australia, New Zealand and South-East Asia.

About the WPP Aunz share price

Despite today's share price moves, the WPP Aunz share price has been a good performer for investors over the past few months.

In addition to being up 81.5% since mid-November, the company was also up around 245% since early April last year.

WPP Aunz has a market capitalisation of $587.98 million at the current share price and a trailing dividend yield of 9.13%.

The post WPP Aunz (ASX:WPP) share price dips on 32% profit drop appeared first on The Motley Fool Australia.

Most times it's music to an investor's ears when one of their stocks will be bought out by another company.

The takeover usually involves a purchase price higher than the market price, so there is a handsome profit involved. The buyer is hardly going to low-ball the existing shareholders, otherwise they won't approve the sale.

One recent example on the ASX is Amaysim Australia Ltd (ASX: AYS).

The telecommunications provider is currently in the midst of a takeover from listed investment company WAM Capital Limited (ASX: WAM). WAM offered 70 cents for each Amaysim share in cash or 85.6 cents per share in WAM stock.

This gave Amaysim's shareholders a 15.6% premium to the one-month volume-weighted average price after the end of October.

So should investors try to buy up shares that could become takeover targets?

Takeovers only happen on the way up

Forager chief investment officer Steve Johnson said that cheap stocks often end up with a takeover as the happy ending for investors.

But they rarely happen for companies enduring a difficult time.

"You tend to see them once the business has at least turned around," he said on a Forager video.

"Once it's recovered and the share price is reasonably fair and then someone can pay a sense of premium to that and everyone is happy."

He took advertising agency WPP Aunz Ltd (ASX: WPP) as an example in the Forager Australian Shares Fund (ASX: FOR) portfolio.

WPP AUNZ in December received a buyout offer from its parent WPP PLC (LON: WPP).

"That takeover bid is 70 cents compared to a share price that was down in the 20s back in March, and maybe early 40s when we first bought it."

According to Forager senior analyst Alex Shevelev, the company transformed during the COVID-19 period to improve its performance.

"During calendar 20, the management team was doing some pretty good things to try to get the business back onto even ground. They were cutting costs," he said.

"The parent company that already owned 62% of WPP, of course, was aware of what was going on there and that things were improving. Clearly they felt that was a good opportunity to launch a bid for the remaining portion that they didn't own."

Relying on takeovers for returns: right or wrong?

This is why investors should not be solely relying on the possibility of a takeover for return on investment, according to Johnson.

"If you're relying on them for value realisation then you're in trouble — because it means something else has gone wrong with your investment," he said.

"That's my advice to everyone: Make money and pay dividends, and if we get a takeover then that's the cream on the cake — not the reason that we own the stock."

The next likely ASX takeover 

Shevelev named Eclipx Group Ltd (ASX: ECX) as another company with huge potential for a buyout.

It plays in the car fleet management industry where economies of scale are "very dramatic".

"So if you had an acquisition of this business by one of the other two players… the synergies across that group would be very significant," he said.

"That's coupled with a restriction on the number of deals that can be done here because the industry is getting quite consolidated after a period of mopping up of smaller players."

Johnson agreed that Eclipx is "a good example".

"I think the economic rationale for it in that sector is very significant."

The post Should you buy ASX shares that are takeover targets? appeared first on The Motley Fool Australia.