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Down 30% for the year, is there worse to come for Aveo Group?

The Aveo Group (ASX: AOG) share price has fallen 30% this year, following in the wake of a Four Corner and Fairfax media investigation which accused the company’s retirement homes of exploiting residents and gouging them on prices.

Aveo Group vs the ASX 200. (source: Google Finance)

Aveo also ran into some hot water over accusations that directors were buying shares on-market just before the company announced a buyback. Yet there could be worse news in store today, after Fairfax media suggested that the Government could be cracking down on the sector. Consumer Affairs Minister Michael McCormack was quoted as saying:

“So I am going to work with my state and territory counterparts to discuss this important issue.”

What’s a shareholder to do? 

In my opinion, regulatory concerns are typically overblown. A sensitive issue like aged care centres can attract a lot of press and investor attention but often the regulatory changes reflect small refinements, for example a change in reporting requirements, rather than huge sweeping changes that will put some operators out of business. I would not be concerned about regulatory changes per se.

However, if the allegations are true, I would be concerned about Aveo’s ‘social license to operate’ (a key driver of its ability to attract customers), and the potential for class actions can’t be overlooked. For the contrarian investor however, Aveo looks pretty interesting with Net Tangible Assets of $3.20 per share as of 31 December 2016.

For those who are not keen on the business following recent media coverage, there are a number of similar businesses such as Lifestyle Communities Limited (ASX: LIC)Gateway Lifestyle Group (ASX: GTY), and INGENIA STAPLED (ASX: INA) for investors to choose from.

Speaking for myself, I'm watching Aveo from the sidelines for now. Here are 5 shares I'd prefer to buy instead:

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. 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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