NMC Health (LON:NMC) shares dived over 50% across the previous week, wiping £2.7 billion from the company’s value. Today the stock has jumped over 20%. What is causing such high levels of volatility and is it time to buy?
The share price of the UAE based healthcare provider collapsed last week following scathing research report by short seller Muddy Waters.
Excessive debt is a key risk for the company. Part of Muddy Water’s hypothesis is that NMC has substantial debt which it keeps off its balance sheet in a similar way to Carillion, and which contributed to its collapse. Questions over fraud and theft of company assets were also brought up by Muddy Waters.
Given investors’ reaction to the Muddy Waters accusations, it would appear that many agreed.
NMC's rebuttal on Friday did little to stop the run on shares, investors needed more than a simple denial. However, today’s announcement that it has launched a review of its books following the Muddy Waters report appears to have quelled some fears, at least for now.
What next?
The future of NMC depends largely on whether the allegations turn out to be true. If they are true, the company’s financial outlook must be reassessed by the market.
Allegations like this often stain a company and it can take a significant amount of factual evidence to boost confidence and change opinion. It is unlikely to be a quick process to get to the bottom of this which means that the share price could struggle to recover to pre allegation levels any time soon
"Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions."