Slater & Gordon Limited (ASX: SGH) has continued its recovery today, lifting another 5.1% following yesterday's 3.2% gain. The stock now trades at $3.68 after trading for just $3.32 on Wednesday last week.
So What: Slater & Gordon, the once high flying legal eagle, has seen its shares crash back down to earth over the last three weeks as a result of various questions related to its accounting policies.
To begin with, the market's worst fears were realised when the United Kingdom's Financial Conduct Authority announced that it would look into the activities of Quindell Plc – from which Slater & Gordon acquired its Professional Services Division (PSD) for the grand sum of $1.2 billion earlier this year.
Although Slater & Gordon itself has expressed its confidence that it has no liability in relation to the ongoing investigations into the business, the market wasn't so certain at the time as investors scrambled for the exits.
The situation got even worse for the law firm after it was announced that Australia's own financial watchdog, the Australian Securities and Investments Commission (ASIC), would undertake its own investigation into Slater & Gordon and the relationship it enjoys with auditing partner Pitcher Partners.
It was later confirmed that two errors had been found thus far whilst analysis undertaken by VGI Partners suggested there were other reasons to worry about the business.
Now What: Thankfully, there has been no news from the Slater & Gordon camp since 29 June. Based on the notion that no news is normally good news, it seems that investors are growing in confidence and hoping to buy shares in the beaten-down company, before the big gains are made.
Personally however, I would wait until more light is shed on the situation. Although no more accounting errors have been announced since that date, that doesn't mean the company is completely in the clear with further pitfalls possible in the near future. As such, investors would be better off investing their funds elsewhere – especially considering the market's heavy selloff recently which has high-quality companies trading at bargain prices.
