Here’s why Slater & Gordon Limited shares have been punished

As of the close of trade on Friday 18 March, Slater & Gordon Limited (ASX: SGH) will no longer be part of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). This reflects its horrendous performance in recent months.

The change comes as part of the S&P Dow Jones Indices March quarterly review, in which a number of big-name companies often find themselves earning promotions, or else being served demotions, based partially on the performances of their shares.

Slater & Gordon’s shares hit a high of $8.07 in April 2015. Investors thought the company could do no wrong as it continued its growth by acquisition strategy, until it spent about $1.2 billion on Quindell’s Professional Services division in the United Kingdom.

It’s been all downhill since then, including separate investigations into the businesses by the Australian Securities & Investments Commission and the UK’s own regulators into their accounting practices and work-in-progress estimates. Meanwhile, a proposed change to the UK’s personal injury laws simply rubbed salt into the company’s wounds.

To make matters worse, investors have been given plenty of reasons to doubt the integrity of the group’s management, while there is also the chance the banks could force it to repay its entire bank debt (all $783 million of it) by 31 March 2017, in the worst case scenario.

All things considered, it’s been a terrible 12 months for Slater & Gordon, and things could get even worse from here. The shares have already fallen 95.7% since peaking in April 2015 – they’re down 4.2% today alone at just 34.5 cents – with a market valuation of just $122 million.

That certainly isn’t enough to warrant a position in the S&P/ASX 200, while the strong headwinds facing the business are a good enough reason to keep its shares out of your portfolio as well.

Notably, Slater & Gordon’s rival, Shine Corporate Ltd (ASX: SHJ), was also removed from the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO) as a result of its own poor performance.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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