DOW
Downer had a very disappointing update yesterday, which saw the share price off 20% on the day (as much as 30% at the start).
The stock had been performing inline with the sector, which in turn tends to track the market (most of those businesses are either cyclical or GDP-type companies).
Then they announce accounting irregularities, and all bets are off. If you can’t rely on the financials, which you used to formulate your thesis, out it goes.
That’s 2 we’ve now had. Medibank, which got hacked, and Downer, where the CEO implied possible fraud, but at the very least a material oversight in process. They are essentially unforecastable events (I mean, yes, as a holder of valuable data you can argue that Medibank are a naturally higher candidate for hacking than say the owner of KFC (the chicken shop), and thus one is more likely than the other), and don’t lend themselves well to process.
In DOW’s case, perhaps the issue will be confined to just one contract, just one set of failed procedures, and have no wider implication, in which case the shares are incredibly cheap. But equally, when you see one cockroach, best to assume there are more.
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