The last week has been hugely disappointing for investors in Quindell (LSE: QPP). Not only has its share price fallen by 58% in just a week, the companys Chairman, CFO and a Non-Executive Director have all resigned due to confusion surrounding share transactions that were undertaken by the three individuals in recent days.
The share transactions involved the sale and repurchase of shares in Quindell, but the ambiguous way in which they were reported has caused concern among investors, with sentiment being hit hard as a result. In fact, the LSE is now investigating the recent share price fall due to concerns that rules regarding the disclosure of price sensitive information may not have been adhered to.
So, with Quindells share price being hit hard, is it on the way to zero? Or, could it turn things around and bounce back to 100p?
Of course, whenever share price falls are as savage as those seen recently with Quindell, it inevitably leads to rumours regarding the company in question. In Quindells case, these have included talk of a potential sale of the companys 25% stake in Nationwide Accident Repair Services, which Quindell has today denied. However, further rumours are likely and they could mean that Quindells share price is hurt in the near term, as investors become even more nervous regarding exactly what is set to take place at the company.
One change that will take place is that a new management team will be found. However, it could take some time to achieve this, since Quindell is a business in turmoil and is arguably not a hugely attractive prospect for many potential candidates. Once they are found, new management is likely to seek to clear out the closet in terms of getting all bad news out of the company in a short space of time.
This a common step for new management to take, as it means they can display progress since the start of their tenure. However, with Quindell not having the best of reputations for communicating effectively with shareholders in the past, investors must expect significantly negative news flow to emerge once a new management team is put in place. This could hit the companys share price very hard in the short term.
The LSEs investigation into Quindells share price fall is also set to dampen sentiment and could take some time to conclude. Its findings could be negative and hurt the companys share price. Furthermore, with an investigation hanging over its head, a lack of a permanent management team and a plunging share price, it would be of little doubt for Quindells customers to have doubts in terms of not wishing to do business with the company. This could hurt Quindells top and bottom lines over the short to medium term.
Its difficult to see how Quindells share price can mount a sustained rise in the short run. Certainly, shares in the company are up 21% today, but this could be a closing of short positions rather than the start of a potential turnaround. Indeed, Quindell seems to have a mountain of problems that could get far, far worse. Not only does it have a very poor reputation among the investment community as a result of disappointing communications, there remain doubts surrounding its business model, an investigation hanging over its head, the potential for customers to avoid engaging in business with it, and the potential for new management (once they are appointed) to release yet more bad news.
So, while it appears dirt cheap at its current share price of 52p, Quindell seems more likely to head to zero than 100p over the short to medium term. There may come a point when shares in the company are worth buying as a recovery play, but between now and then things could get a lot worse before they start to get better.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.