Getswift Ltd (ASX: GSW) shareholders are likely to be scratching their heads this morning on news that the delivery logistics software start-up is planning to give law firm Squire Patton Bloggs a taste of its own medicine by suing them for misleading conduct that inflicted big losses on shareholders.
Squire Patton Bloggs originally wanted to lead a class action against GetSwift for inflicting losses on shareholders due to GetSwift’s own allegedly misleading conduct relating to breaches of its continuous disclosure obligations.
In other words we now have two companies who want to sue each other for causing damage to the same stock price for different reasons. Confused? You should be as this sorry tale demonstrates the problem with investing in the lightly-regulated speculative end of the share market where companies often have little to zero revenue and are thus reliant on selling a story to less-sophisticated retail investors (or Fidelity International) in order to raise capital at inflated valuations.
Squire Patton Bloggs still reports on its website that its estimated claim size for damages against GetSwift “may exceed $300 million” although that figure it seems is now widely accepted to be inaccurate.
GetSwift reported that the total potential quantum according to two other class action law firms that pursued a claim is between $75 million to $100 million, or $120 million to $140 million, respectively.
To be honest working out a ballpark damages figure should not be hard as it would represent the number of claimants multiplied by potential damages awarded, with damages awarded being calculated on the actual loss to investors due to the share price falls between the given period over which the deceptive conduct allegedly occurred.
As Squire Patton Bloggs summarised in its claim: “During 2017, the GSW share price climbed steeply to an all-time high of AU$4.60, giving it a market capitalisation of more than AU$598 million. This surge coincided with a series of company announcements to the ASX regarding contractual arrangements said to have been reached with key service providers. GSW raised AU$75 million in a placement in December 2017 at AU$4 per share”
Some of GetSwift’s ASX aforementioned announcements included agreements with the likes of Betta Home Living, Fantastic Furniture, a “multi-year partnership” with “global icon” Yum Brands! and who could forget the Amazon and Commonwealth Bank of Australia (ASX: CBA) deals.
Unfortunately all these deals for the “software-as-a-service” group amounted to just $250,000 in receipts from customers for the quarter ending March 31 2018, which suggests GetSwift is around fair value at its current market price of 34.5 cents.
It’s a stock I warned investors repeatedly against as it looked wildly over-valued, while other businesses in the “pot stock” sector now appear to also be sitting in a similar valuation bubble that will deflate over time.
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Motley Fool contributor Tom Richardson owns shares of Amazon.
You can find Tom on Twitter @tommyr345
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia has recommended Amazon. 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.