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Why the Slater & Gordon Limited share price is rocketing today

Credit: Patrick McKnight

Shares in embattled law firm Slater & Gordon Limited (ASX: SGH) soared higher today despite the company releasing no news to the ASX. At the time of the writing the stock is up around 17% and while that might sound impressive the cash value of the shares is only up 5.5 cents to 38.5 cents.

Today’s price action is likely the result of speculators and day traders looking to make a quick buck as sentiment swings as to whether the overly indebted cash flow negative law firm can buy time with its banking creditors including Westpac Banking Corp (ASX: WBC).

The company reportedly has a little over a month to come up with a turnaround plan for its Slater & Gordon Solutions business, which has performed disastrously since the law firm purchased it near the start of 2015.

Clearly the firm is in a perilous position and it will be up to the chief executive to try and dig the company and its shareholders out of the giant hole he has created in deciding to buy part of the Quindell business.

Another law firm in trouble over shoddy accounting practices is rival tort law operator Shine Corporate Ltd (ASX: SHJ). Its shares are flat today at 80 cents, but still down around 66% since the company admitted it had been overstating work in progress carried on its balance sheet.

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Motley Fool contributor Tom Richardson owns shares of Slater & Gordon Limited. 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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