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G8 Education (ASX:GEM) share price rebounds after lawsuit news

A teacher in front of a classroom chalkboard filled with questionmarks, indicating share market uncertainty
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The G8 Education Ltd (ASX: GEM) is having a rough time today. G8 shares are trading at $1.26 at the time of writing, a 1.21% rise from where they closed at on Friday. That compares to the broader S&P/ASX 200 Index (ASX: XJO), which is up 0.5% today so far.

It’s been a volatile day for G8 shares. They opened at $1.25 this morning, but quickly plummeted by almost 12% soon after, falling as low as $1.10 just before 11am. But as quickly as they fell, G8 shares rebounded spectacularly, rising slightly higher than open to the $1.26 level we see presently. So what’s going on here?

Why the G8 share price is bouncing around today

We can probably put these dramatic moves down to some news that came out about this education company this morning. According to reporting in the Sydney Morning Herald (SMH) today, law firm Slater & Gordon Limited (ASX: SGH) has filed a shareholder class action in the Supreme Court of Victoria. This class action reportedly revolves around G8’s continuous disclosure obligations back in 2017 and early 2018. According to the report, during that time G8 released a profit downgrade which saw the company’s share price crater by 23% in December 2017.

The SMH reports that Slater & Gordon is alleging that the company had forecast earnings for the 2017 year in the “mid to high $170s million” in May 2017. But in early December it was downgraded to “around $160 million”, and then in February turned out to be $156 million. The class action seems to be alleging that G8 did not adequately disclose this situation to the markets as it should have done.

Slater & Gordon practice group leader Andrew Paull is quoted as saying:

We are alleging G8 contravened its continuous disclosure obligations by failing to disclose to the market information relevant to its Full Year 2017 financial performance… We also allege G8 engaged in misleading or deceptive conduct.

G8 hits back

However, G8 has completely denounced these reports. It released a statement this morning which stated the following:

G8 Education… refers to today’s media reports that Slater and Gordon have filed group proceedings in the Supreme Court of Victoria against G8 alleging breaches of G8’s continuous disclosure obligations between 23 May 2017 and 23 February 2018. G8 has not received any correspondence nor service of the proceedings from Slater and Gordon. Any such proceedings, if served, will be vigorously defended.

Judging by the share price performance of G8 shares this morning, it seems as though investors got spooked by the class action news, only to have their concerns assuaged by the G8 release – hence the ‘sharp V’ that we see in the G8 share price today.

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Motley Fool contributor Sebastian Bowen has no position in any of the 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 Scott Phillips.

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