We are truly sorry Quindell, but we’re out – for now..
Amongst many shares we sold last week was one of our favourites – Quindell. At one point it was one of our greatest successes, having more than doubled our money, before being put firmly in reverse and dwindling to 40% of our original investment thanks to what is suspected to have been a co-ordinated short selling attack by Gotham City Research combined with much negative publicity from respected figures like Paul Scott of Stockopedia and Tom Winnifrith of Share Prophets. Partly out of principle (because of the despicable way this share was attacked and artificially deflated) and partly out of belief in the company we held and held and held but our sell off last week gave us the push we needed to sell. And I feel really bad about it because I believe Quindell has been hard done by, but even since we sold the shares have fallen a further 5%.
The chart above makes for pretty depressive reading for Quindell shareholders. The publishing of the Gotham City report in April tanked the share price and it has drifted further and further down since. I’m now of the opinion that no matter how well the company does in the short term, it’s just going to keep drifting downwards. http://shorttracker.co.uk/company/GB00BMTS9H89/all shows that a whopping 7.31% of Quindell’s shares are still being short sold, so clearly some big players still believe the price has further to go down. Even after a fall of more than 70% Quindell is the fourth most shorted share on the UK market.
We discussed the various merits and concerns with investing in Quindel back in July in our article on a brief rise in the share price – http://www.loco-investing.com/articles/2014/07/14/quindell-fight-back-underway – so we wont go over them all again. In brief the major concern other than the Gotham report itself is the worry that their cashflow doesnt back up the profits they are claiming. And that is a big deal.
So what will make Quindell go back up in value? In the short term, I think market sentiment is so negative towards the company that it would take something immense to see a return to the good old days. Longer term, two things – 1) time under the bridge for people to forget and move on from the Gotham report and 2) demonstratably better cashflow generation. I’m hopeful that will happen and Quindell do remain on our watch list for an opportunity to buy back in. And I do think we will buy back in at some stage, either when the share price is just ludicrously cheap or when market sentiment finally turns back in favour.
In the mean time a very similar company, with far better cashflow generation and a stonking dividend of almost 10% is on our radar as a replacement in our portfolio right now. We’ll be reporting on this and other new investments shortly.