The Hut Group crashed by more than 33 percent on Tuesday as its investor presentation went down badly with investors. The online retailer started Tuesday’s trading session with a market cap of £5.4 billion but lost £1.85 billion by the end of day.
This update came after a warning on The Hut Group from The Analyst, which is run by Mark Hiley, who formerly sounded the warning on Wirecard.
In particular, The Analyst warns that the THG’s Ingenuity division is unlikely to be valued at £4.5 billion. The value assigned by Softbank, which invested in Ingenuity for $730 million in May, is too optimistic. Coupled with the latest bungled presentation, investors stampeded out of the stock.
What next for Manchester-based Group? Rebuilding investor confidence is critically needed after the latest share rout. The next trading update is at the end of the month.
At the time of writing, The Hut Group trades at 280p after plunging to 260p earlier in the morning.
The Hut Group’s share price is bearish. But it was already weak before the latest dramatic fall.
Prices were trading at new lows regularly in the days after breaking the lateral support at 550p (see below). A rebound off the 400p round number level failed to stem the heavy selling.
The latest massive negative candle is unlikely to attract heavy buying until investors see some stabilisation of the share price.
In fact, as investors who bought earlier are nursing heavy losses; any oversold rebound is likely to be used as exit points. Therefore, we expect prices to trend lower over the medium term.
We look to round number level as temporary technical support, starting at 250p, then 200p.
The Hut Group forecast is sitting at a huge disparity with the actual share price development.
Out of a panel of 11 analysts, the most bearish case is at 520p. Even this level is now nearly double the latest closing price (285p). Therefore, we suspect analysts will be scrambling to lower their forecasts soon.
As a matter of fact, The Hut Group’s severe decline is a classic example of how broker forecasts and actual price movements deviate. At current prices, either the share is a huge ‘bargain’ or the City was highly overoptimistic.
We trust the market’s collective judgement.
Source: Financial Times
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.