The sell-off was triggered by news that energy regulator Ofgem is considering whether to include Moneysupermarket in a new investigation into possible breaches of competition law.
In a stock market announcement issued after the markets closed on Wednesday, Moneysupermarket said that Ofgem has opened an investigation into whether two or more companies providing a supporting service for the energy industry have breached competition law.
Moneysupermarket is now required to provide information to Ofgem in order to enable the regulator to decide whether to include Moneysupermarket in this investigation.
The investigation appears to be the final stage of a process that started in summer 2014, when Ofgem announced a consultation on the need for price comparison websites to increase consumers awareness of the availability of whole of market comparisons and improve transparency around sites commission arrangements.
In January this year, Ofgem announced that price comparison websites such as Moneysupermarket.com and uSwitch, which is now owned by Zoopla, would have to comply with stricter rules requiring them to show all of the tariffs on offer by default.
We dont yet know what period of time Ofgems investigation relates to, nor which other companies are involved.
What about Zoopla?
At the time of writing, Zoopla has not issued a statement relating to the Ofgem investigation. However, Zooplas 160m acquisition of uSwitch only completed on Monday.
If uSwitch is affected by the Ofgem investigation, Zooplas purchase could prove to be very badly timed indeed.
Whats the risk?
Moneysupermarket reported revenues of 22m from its Home Services business in 2014. The firm said that the majority of these came from utility switching.
Although a significant amount, Home Services only accounted for 9% of Moneysupermarkets total 2014 revenues of 248m.
According to Zooplas, uSwitch generated revenues of 62.9m in 2014. The firm didnt specify how much of this related to utility switching. However, uSwitch has always been seen as a leader in this segment, so Id guess that the majority of its revenue comes from utility switching.
At the moment, all we know is that Ofgem is considering an investigation into two or more companies. We dont know if uSwitch or Moneysupermarket will be included in that investigation. There are a number of other price comparison websites in the UK that could also be targeted.
Time to top up?
Its possible that todays price falls could be a good buying opportunity. However, I wouldnt get too carried away.
Todays 9% drop has only taken Moneysupermarket shares back to the level they were at the start of May, just one month ago.
Moneysupermarkets share price remains fairly close to its all-time high of 309p. In my view, the firms current 2015 forecast P/E of 21 doesnt look quite cheap enough to discount the risk of a costly fine.
Im even less bullish on Zoopla, which I believe will suffer from its second-tier status against competitors Moneysupermarket and Rightmove. Zoopla shares trade on a 2015 forecast P/E of 33 after todays falls. In my view, the risks are too great, despite forecast earnings per share growth of 44% in 2016.
Investing in highly-rated growth stocks like Zoopla and Moneysupermarket can be risky. If things go wrong the shares can fall a long way before bottoming out.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.