Shares in controversial insurance outsourcer Quindell (LSE: QPP) hit a 52-week low of 121p yesterday, taking them down 80% since early April.
Directors’ purchases buoyed it a little after that, and as I write the shares are changing hands at 126p apiece. But I see no comfort for shareholders there.
Money, mouth?
Chairman Rob Terry and his fellow directors might have bought a bundle, but they took on a loan deal to pay for their new shares, with some of their existing stock put up as collateral. That means they haven’t risked a penny of their own money on the deal!
Should the bears turn out wrong, Mr Terry and his mates will be in the money and easily able to pay off the loan. But if Quindell turns out to be worth what the fiercest of the bears think, which is precisely nothing, they’ll have lost something that would have turned out to be worthless anyway.
What about Quindell’s claim that it is still on target to meet year-end guidance and that cash flow is growing?
Hunt the cash
Well, it’s very hard to verify that due to the opacity of Quindell’s accounting. Many have voiced concerns over the company’s revenue recognition practices, and it has so many subsidiaries which are all doing business with each other and passing cash between themselves that’s it’s nigh on impossible for the ordinary investor to get a true grasp of what cash is really coming in and where from.
Now, there are plenty of professionals who have the time and the understanding to pick apart the Quindell figures, and they like what they see — they see a tasty shorting target!
As it stands now, Quindell shares are trading on a forward P/E of just 2.4, dropping to 1.6 based on current 2015 forecasts — and in the 25 years I’ve been investing in shares I don’t think I’ve ever seen a viable company, where the directors’ optimistic assurances have turned out to be well placed, on such a low valuation.
There are clearly a lot of investors out their with a target price of zero pence on their minds.
Be careful
Anyway, this is all just my opinion — I added Quindell to the Fool’s Beginners’ Portfolio, but became disillusioned by subsequent utterances from the company and dumped it again pretty quickly. I know a couple of my Foolish colleagues disagree with me, and for the sake of shareholders I hope they’re right and I’m wrong. But please be especially careful to do your research if you’re thinking of taking a punt on this one.