The Jumbo share price is now down 33% since October

On September 23 2019 Jumbo joined the benchmark S&P/ ASX200 Index (ASX: XJO) of leading Australian companies.

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The Jumbo Interactive Ltd (ASX: JIN) share price has now lost around one third of its value since October 2019 as investors reassess the valuation of the online lottery ticket reseller. 

Back on October 16 2019 it hit a record high of $27.88 but today shares change hands for just $18.18 despite the lotto operator not releasing any material news to the market. 

On September 23 2019 Jumbo joined the benchmark S&P/ ASX200 Index (ASX: XJO) of leading Australian companies. This index is heavily tracked by wildly popular passive investment funds that commonly trade on stock exchanges. Index funds are mandated to buy index constituents regardless of valuation and Jumbo's vertiginous rise to October 16 may be related to index fund buying. 

Market professionals have also suggested that day traders, professional traders, and algorithmic programs may also be front running the index funds in buying securities they know via public information (released by S&P for example) will be added to an index. This is in order to potentially sell holdings onto index funds or market participants at a profit after they're added to the index. 

Often the relatively low daily trading volumes (i.e. liquidity) of new index members can add to the wild price swings first higher and then lower. 

Over FY 2019 Jumbo posted a net profit of $26.4 million on sales of $65 million. It's also tipping investors to expect more profit growth in FY 2020. 

Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia has recommended Jumbo Interactive 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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