Why Slater & Gordon Limited shares are soaring higher today

After a horror week last week, things could have turned around for the Slater & Gordon Limited (ASX: SGH) share price. Shares went as low as $0.61 in trade on Friday morning, roughly a 70% loss for the week.

However, a management announcement this morning confirming the company’s guidance and outlining the potential impacts seems to have reassured shareholders, who piled back into the stock.

Over 25 million shares (over 7% of the total float) have traded hands, and the stock is selling for close to $1 at the time of writing – after just one hour of trading.

source: Google Finance

(source: Google Finance)

The cruel nature of mathematics, however, means that shares are still substantially below the $2 they sold for at the same time last week.

Whether Slater & Gordon shares will continue to appreciate in value further is unknown, although given that they trade on a Price to Earnings (P/E) ratio in the low-single digits (ASX average is ~14) it seems certain that their worth will continue to be hotly debated amongst investors.

I’m not a buyer at today’s prices (or last week’s, for that matter) as I feel a significant amount of uncertainty remains around the company’s future earnings potential in the UK, despite today’s update.

Investors who love a legal eagle might want to look around at Shine Corporate Ltd (ASX: SHJ). Its shares are also rising strongly today, but are still down some 7% compared to last week, when they started sinking in sympathy with Slater & Gordon.

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Motley Fool contributor Sean O'Neill 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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