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Why the Slater & Gordon Limited share price was slammed

Credit: Patrick McKnight

Slater & Gordon Limited’s (ASX: SGH) share price came under renewed pressure on Tuesday, ending the day at just 97 cents which represented a 12.6% decline from the previous closing price.

So What: Considering the absence of any fresh news to explain yesterday’s fall, it seems likely that investors may have been taking some of their cash off the table following a rebound in the group’s share price recently.

Indeed, Slater & Gordon’s share price fell to a low of just 59.5 cents just under a fortnight ago, down from $3 last month and $8 in May. The shares more than doubled in price in what was a three-day rebound, hitting a high of $1.445, but have since retreated again as investors once again become doubtful about the company’s future prospects.

The latest concern for Slater & Gordon is proposed changes to personal injury laws in the United Kingdom. Although Slater & Gordon has reiterated its earnings forecasts for financial year 2016 (FY16) twice, investors are still pessimistic about what the changes could mean for the group in FY17 and beyond.

Slater & Gordon controversially acquired the UK-based Quindell Plc’s Professional Services Division earlier this year for more than $1 billion and it is believed that the business could be severely impacted should those proposed changes be implemented.

Now What: Shares of Slater & Gordon have fallen an agonising 88% since peaking in May this year and currently boast a market value of just $342 million. While that might seem like a bargain to some investors, Slater & Gordon is still a very risky investment prospect and the share price could fall even lower than it is today.

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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. You can follow Ryan on Twitter @ASXvalueinvest.

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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