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Why the G8 Education Ltd share price has been slammed today

Unfortunately for its long-suffering shareholders, the G8 Education Ltd (ASX: GEM) share price dropped over 10% to a multi-year low of $2.33 during trade on Wednesday.

While this brought the childcare centre operator’s 12-month decline to a disappointing 20%, it also meant that its shares have now halved in value since peaking at $4.71 late last year.

Why are its shares being slammed today?

There appears to be two catalysts for today’s sizeable decline.

The first is a broker note out of Morgan Stanley that was released this morning.

That note revealed that its analysts have downgraded the childcare centre operator to an equal-weight (hold) rating and slashed the price target on its shares from $4.25 to a lowly $2.80.

The broker made the move after downgrading its forecasts for G8 Education’s occupancy levels this year and next.

According to the note, the broker expects G8 Education to achieve occupancy levels of 77.7% this year and 79% next year. This is significantly lower than where these levels have been in the past.

Another potential catalyst is news that its former chairwoman, Jenny Hutson, has been charged with attempting to pervert the course of justice following an ASIC investigation into G8 Education’s takeover bid for Affinity Education in 2015. Hutson faces up to 25 years in jail.

The company has responded to the news with a release, stating that: “The Group confirms that Ms Hutson has been named in the charges and that no allegations have been made against G8 or any other current board member or staff. G8 has had no contact from ASIC on this matter since 2016.”

Should you buy the dip?

I think investors ought to give G8 Education a wide berth. I have been very disappointed with its performance and failure to deliver on expectations in the past, and don’t expect any different over the next couple of years.

Investors may be better off looking elsewhere in the industry at Think Childcare Ltd (ASX: TNK) or IDP Education Ltd (ASX: IEL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended G8 Education Limited. 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 Scott Phillips.

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