Vocation Ltd is taken to the cleaners: Should you sell?

To say Vocation Ltd (ASX: VET) investors will be unhappy today looks an understatement after the company this morning confessed to a further profit downgrade.

Having only hit the ASX boards just before last Christmas, Vocation’s journey from over $3 a share in October to 15 cents today is unlikely to find its way into a Harvard MBA student’s textbook on how to run a newly-listed company.

Statutory earnings for FY 2015 are now expected to be between $25-30 million. A long way off the forecast $53-57 million proclaimed as recently as October.

Things started to head downhill fast for Vocation after a Victorian government audit of some of Vocation’s educational operations resulted in nearly $20 million of pulled funding. Vocation’s confession over the failed audit saw the shares slump more than 70% in value as institutional investors dumped the stock en masse.

The vocational training business is blaming the latest downgrade on the fallout from the failed audit, with student enrolments down and the company’s credibility coming into focus not just with investors.

Vocation already has several fee-hungry law firms on its case over its alleged failure to disclose material information and alleged misleading conduct prior to the funding loss announcement. The disappointed litigants (sore losers) are likely to be represented by Slater & Gordon Limited (ASX: SGH) and IMF Bentham Ltd (ASX: IMF), who’ll be more than happy to teach Vocation a basic lesson in the realities of the Corporations Act.

This all goes to show that investing is a high risk business in which it’s crucial to be confident your money is going into businesses with first-class management and big growth runways.

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Motley Fool contributor Tom Richardson owns shares in Slater and Gordon. You can find him on Twitter @tommyr345

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