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Morgan Stanley warns that this tech stock is about to tumble

The Computershare Limited (ASX: CPU) share price is under pressure this morning along with the rest of the IT sector but there could be more near-term pain for the financial and investment services group if Morgan Stanley is right.

The Computershare share price stumbled 0.6% to $15.70 at the time of writing when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index shed 0.4% of its value.

It doesn’t help that tech stocks were taking the brunt of the sell-off with high profile names like the WiseTech Global Ltd (ASX: WTC) share price, Appen Ltd (ASX: APX) share price and Nearmap Ltd (ASX: NEA) share price on the list of the five worst performers on the ASX 200 today.

Why Computershare could slide in coming weeks

These shares may have nothing to do with Computershare’s business model but sentiment can be a funny thing, and a warning by Morgan Stanley could see the stock underperform for a little while longer.

The broker estimates that there is a 70% to 80% chance that the stock will fall in absolute terms over the next 60 days.

“This is because the stock has traded up recently, making short term valuation much less compelling. Now is not the time in the cycle to own CPU, in our view, given its significant exposure to falling interest rates and corporate activity,” said Morgan Stanley.

“In addition, the market is overlooking the earnings hole in UK mortgage servicing. The media is reporting that Sainsbury’s is examining strategic options for its lossmaking financial services arm, including potentially divesting its mortgage book.”

The group’s UK challenge

That would be worrisome for Computershare as Sainsbury is its second largest UK challenger bank client as Sainsbury originates around US$1 billion a year of mortgages.

What’s more, the broker doubts that Computershare can achieve its loan growth targets after getting feedback from a number of UK lending specialists.

If this comes to pass, Computershare could be a short-seller’s delight!

A short-seller is a trader who borrows the stock to sell on-market in the hope of buying it back at a lower price later to profit from the difference.

Morgan Stanley has an “underweight” recommendation on Computershare with a price target of $13 a share. That’s nearly a 20% downside to the current share price.

October also tends to be a seasonally weak period for ASX shares, so seeing the CPU share price fall further from here may not be that improbable as well, in my view.

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BrenLau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. and WiseTech Global. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Computershare and Nearmap Ltd. 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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