Are investors right to shote so much?

Business team investment working with computer and analysis graph stock market trading with stock chart data, business and technology concept

Companies such as General Electrics (GE), Altice, Tesla, Inna pharma have lost the confidence of their shareholders due, for the most part, to a weak or clumsy management team leading to disappointing results.

Result, shareholders sell (short) their portfolio securities by, most often, a panic movement related to the company’s media exposure.

For as much GE and Tesla are two companies that take problems to heart and decide to develop a healthy society.

By reacting strongly to media news, investors may not make the right choice to sell these stocks in a hurried manner.

However, the extreme shortage of Altice and Innate pharma represents a more reasonable choice for the risk-averse investor.

It is important for an investor to distinguish between things and to know where relevant information is found that is often not found in the media.

Are investors right to shorten as much?

This year was particularly marked by the end of shareholder tolerance for companies in which they have invested. Some stock prices have fallen sharply for various reasons, such as worse than expected results or revelations about the financial soundness of certain companies.

The loss of investor confidence often reflects the lack of vision of executives to develop their company or the attraction of investors to speculate in the market in order to generate added value regardless of fundamentals.

Thus, can we say that the brutal price movements are really justified?

A demonstration of poor management

As mentioned above, a major reason for loss of market capitalization lies for shareholders to see the company perform less well than expected. This lack of performance is often due to an unfavourable economic situation or a lack of management involvement in the development of the company.

With regard to the second reason, several examples can be highlighted for the year 2017 such as General Electrics (GE) and Altice.

GE had a complicated year, with a price that fell by half this year, reducing the share price from about 30 euros at the beginning of the year to about 15 euros at the end of November. To address the loss of shareholder confidence, GE is now in the process of transforming1 to make the necessary changes. Some of John Flannery’s decisions, such as halving the amount of dividends paid, have added to the already existing dissatisfaction of shareholders who were told that they had been told better results than those achieved.

Despite the fall in GE’s share price, it is reasonable to expect the company to regain operational efficiency within one to two years, knowing that Mr.Flannery has declared its intention to sell the assets2 railway equipment production and industrial lighting activities. This restructuring shows management’s willingness to reduce the size of the group in order to focus on the activities in which GE has made itself known and has extensive expertise: energy (mainly).

All the decisions taken by the new CEO demonstrate management’s involvement in rationalizing operating costs and maximizing profits, but these have not prevented the company from being poorly perceived by the market, which has probably overreacted.

The second case of a company sanctioned for lack of managerial efficiency, and by extension of financial results, is that of Altice. The Altice problem was the combination of a reduction in debt of €51 billion and a more disappointing third quarter result (Q3) than expected3, published on November 3.

These problems can be highlighted by the history of the course represented below, where we can clearly see the stock losing value three days before publication of Q3 and literally landing after publication of the results:

The share price has been divided by more than two since the beginning of November to fall below €7.50 at the end of November for the reasons mentioned above

Source : Boursorama

Patrick Drahi who still retains, for the time being, 60% of Altice has decided to organize debt restructuring plans until 20214>. Altice may not be able to meet its liabilities unless Mr. Drahi has a vision for the future, which, for the moment, does not seem to be the case5. The sanction of Altice by the shareholders seems to be justified here.

A lack of realism in the announced objectives

In a somewhat different but not so distant register, Tesla stock has risen quite extraordinarily since the beginning of the year when it was no more than $225 and rose to $380 before losing more than 20% of its market value in just two months, mainly due to production difficulties of the latest model, the “model 3”. Elon Musk, known for setting an agenda that is too narrow in relation to the objectives pursued, finds himself sanctioned by the shareholders, who for a number of them have shorttered it for speculative reasons.

This being so, Tesla nevertheless manages to create a particular attachment to its shareholders, thanks in large part to Musk’s vision, and this despite a lack of dividend6>. <p

Thus, the downward price movement had no real reason to exist, it is not the first time that Tesla has encountered problems and finds itself having to overcome them, but the title has, financially, no reason to be so valued from the outset.

A lack of shareholder conviction

More recently still than the phenomenal loss of Altice, Innate pharma lost 40% of its stock market value on Wednesday, November 22, or about 200 million euros. This is due to disappointing results concerning the clinical study of a molecule in the treatment of head and neck cancers. The program seems to be coming to an end and with it a partnership involving the American company Bristol-Myers Squibb and their molecule nivolumab.

We can think that this is a loss of investor confidence linked to progress that was encouraging on this program in 2016 but it does not prevent the company’s development from being based solely on this molecule.

It would seem that shareholders are sensitive to bad news from bio-tech companies, especially regarding the development of new processes or molecules to cure diseases. It only takes one problem with a project that has received significant media exposure, compared to the rest of the company’s projects, to see it lose all credibility in the eyes of the market.

At the same time, we can understand the fear of shareholders in view of the limited success of the many existing bio-techs, more and more numerous to integrate the financial markets.

Innate pharma has probably mismanaged its communication with the general public and failed to make shareholders understand what it was doing and the (relative) variety of projects in which it is involved.

With these various examples, everything leads us to believe that most stock market investors are content to manage their portfolio according to new media and not based on the fundamentals or financial analysis of the target company.

It goes without saying that this type of behaviour can lead to an overvaluation or undervaluation of certain companies and leaves insiders opportunities to arbitrate their counterparts, if the price movement is not justified.

In a permanent news environment, it is difficult to separate relevant information from the lot. The decision of many investors to buy or sell the same security is more the result of a sudden decision based on information in the media, accentuated by a lack of anticipation, than of a carefully considered act. The volume traded results in a temporary increase in volatility and triggers the stop-loss of some people, causing the stock to plunge a little further.

Bibliography

Par ordre chronologique de l’article

The Economist, p.58, November 18TH-24TH 2017 issue (General Electrics)

New GE CEO and date of appointment: https://www.ge.com/reports/john-flannery-named-chairman-ceo-ge/

Loss of shareholder confidence in Altice: http://www.businessinsider.fr/altice-bourse-engagements-fin-rumeurs-20-novembre-2017

Report 3ème trimestre Altice : file:///C:/Users/N.DUVOISIN/Desktop/Altice%20Ltd/ALTICE%20Q3%202017%20Results%20Presentation%20vFinal.pdf

Tesla’s loss of speed http://pro.largus.fr/actualites/general-motors-depasse-a-nouveau-tesla-en-bourse-8622389.html

http://www.zonebourse.com/INNATE-PHARMA-35620/actualite/INNATE-PHARMA-chute-apres-une-mauvaise-nouvelle-concernant-lirilumab-25561395/

Eviction of Ford’s CEO for lack of performance with regard to the popular technology used by Tesla : http://trends.levif.be/economie/entreprises/si-le-pdg-de-ford-a-perdu-son-job-c-est-a-cause-du-syndrome-tesla/article-opinion-671611.html

Innate pharma is losing value: http://www.zonebourse.com/INNATE-PHARMA-35620/actualite/INNATE-PHARMA-chute-apres-une-mauvaise-nouvelle-concernant-lirilumab-25561395/

1 Jeffrey Immelt a été remplacé par John Flannery au 1er août 2017

2 Les actifs sont valorisés à 20 milliards de dollars

3 Des actionnaires ont intenté une « class action » le 14 novembre à l’égard d’Altice pour diffusion de fausses informations et minoration de la dette, ce qui se rajoute au climat morose au sein du groupe

4 Patrick Drahi a réussi à repousser plusieurs échéances de remboursements mais devra faire face à des remboursements importants à compter de 2022 pour un montant estimé à 9 milliards d’euros et 7 milliards d’euros supplémentaires l’année suivante ce qui sera possible seulement si le groupe

5 Le groupe ne pourra rembourser ses dettes que s’il arrive à dégager des cash flows constants jusqu’en 2022 alors que SFR a perdu un million de clients en un an et y « remédie » en licenciant 5000 salariés

6 La société n’a jamais affiché un compte de résultat positif depuis sa création.

Nicolas DUVOISIN


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Are investors right to shote so much?

Business team investment working with computer and analysis graph stock market trading with stock chart data, business and technology concept

Companies such as General Electrics (GE), Altice, Tesla, Inna pharma have lost the confidence of their shareholders due, for the most part, to a weak or clumsy management team leading to disappointing results.

Result, shareholders sell (short) their portfolio securities by, most often, a panic movement related to the company’s media exposure.

For as much GE and Tesla are two companies that take problems to heart and decide to develop a healthy society.

By reacting strongly to media news, investors may not make the right choice to sell these stocks in a hurried manner.

However, the extreme shortage of Altice and Innate pharma represents a more reasonable choice for the risk-averse investor.

It is important for an investor to distinguish between things and to know where relevant information is found that is often not found in the media.

Are investors right to shorten as much?

This year was particularly marked by the end of shareholder tolerance for companies in which they have invested. Some stock prices have fallen sharply for various reasons, such as worse than expected results or revelations about the financial soundness of certain companies.

The loss of investor confidence often reflects the lack of vision of executives to develop their company or the attraction of investors to speculate in the market in order to generate added value regardless of fundamentals.

Thus, can we say that the brutal price movements are really justified?

A demonstration of poor management

As mentioned above, a major reason for loss of market capitalization lies for shareholders to see the company perform less well than expected. This lack of performance is often due to an unfavourable economic situation or a lack of management involvement in the development of the company.

With regard to the second reason, several examples can be highlighted for the year 2017 such as General Electrics (GE) and Altice.

GE had a complicated year, with a price that fell by half this year, reducing the share price from about 30 euros at the beginning of the year to about 15 euros at the end of November. To address the loss of shareholder confidence, GE is now in the process of transforming1 to make the necessary changes. Some of John Flannery’s decisions, such as halving the amount of dividends paid, have added to the already existing dissatisfaction of shareholders who were told that they had been told better results than those achieved.

Despite the fall in GE’s share price, it is reasonable to expect the company to regain operational efficiency within one to two years, knowing that Mr.Flannery has declared its intention to sell the assets2 railway equipment production and industrial lighting activities. This restructuring shows management’s willingness to reduce the size of the group in order to focus on the activities in which GE has made itself known and has extensive expertise: energy (mainly).

All the decisions taken by the new CEO demonstrate management’s involvement in rationalizing operating costs and maximizing profits, but these have not prevented the company from being poorly perceived by the market, which has probably overreacted.

The second case of a company sanctioned for lack of managerial efficiency, and by extension of financial results, is that of Altice. The Altice problem was the combination of a reduction in debt of €51 billion and a more disappointing third quarter result (Q3) than expected3, published on November 3.

These problems can be highlighted by the history of the course represented below, where we can clearly see the stock losing value three days before publication of Q3 and literally landing after publication of the results:

The share price has been divided by more than two since the beginning of November to fall below €7.50 at the end of November for the reasons mentioned above

Source : Boursorama

Patrick Drahi who still retains, for the time being, 60% of Altice has decided to organize debt restructuring plans until 20214>. Altice may not be able to meet its liabilities unless Mr. Drahi has a vision for the future, which, for the moment, does not seem to be the case5. The sanction of Altice by the shareholders seems to be justified here.

A lack of realism in the announced objectives

In a somewhat different but not so distant register, Tesla stock has risen quite extraordinarily since the beginning of the year when it was no more than $225 and rose to $380 before losing more than 20% of its market value in just two months, mainly due to production difficulties of the latest model, the “model 3”. Elon Musk, known for setting an agenda that is too narrow in relation to the objectives pursued, finds himself sanctioned by the shareholders, who for a number of them have shorttered it for speculative reasons.

This being so, Tesla nevertheless manages to create a particular attachment to its shareholders, thanks in large part to Musk’s vision, and this despite a lack of dividend6>.

Thus, the downward price movement had no real reason to exist, it is not the first time that Tesla has encountered problems and finds itself having to overcome them, but the title has, financially, no reason to be so valued from the outset.

A lack of shareholder conviction

More recently still than the phenomenal loss of Altice, Innate pharma lost 40% of its stock market value on Wednesday, November 22, or about 200 million euros. This is due to disappointing results concerning the clinical study of a molecule in the treatment of head and neck cancers. The program seems to be coming to an end and with it a partnership involving the American company Bristol-Myers Squibb and their molecule nivolumab.

We can think that this is a loss of investor confidence linked to progress that was encouraging on this program in 2016 but it does not prevent the company’s development from being based solely on this molecule.

It would seem that shareholders are sensitive to bad news from bio-tech companies, especially regarding the development of new processes or molecules to cure diseases. It only takes one problem with a project that has received significant media exposure, compared to the rest of the company’s projects, to see it lose all credibility in the eyes of the market.

At the same time, we can understand the fear of shareholders in view of the limited success of the many existing bio-techs, more and more numerous to integrate the financial markets.

Innate pharma has probably mismanaged its communication with the general public and failed to make shareholders understand what it was doing and the (relative) variety of projects in which it is involved.

With these various examples, everything leads us to believe that most stock market investors are content to manage their portfolio according to new media and not based on the fundamentals or financial analysis of the target company.

It goes without saying that this type of behaviour can lead to an overvaluation or undervaluation of certain companies and leaves insiders opportunities to arbitrate their counterparts, if the price movement is not justified.

In a permanent news environment, it is difficult to separate relevant information from the lot. The decision of many investors to buy or sell the same security is more the result of a sudden decision based on information in the media, accentuated by a lack of anticipation, than of a carefully considered act. The volume traded results in a temporary increase in volatility and triggers the stop-loss of some people, causing the stock to plunge a little further.

Bibliography

Par ordre chronologique de l’article

>.

The Economist, p.58, édition du 18 au 24 novembre 2017 (General Electrics)

>fr

Nouveau PDG de GE et date de nomination : https://www.ge.com/reports/john-flannery-named-chairman-ceo-ge/

>.

Perte de confiance des actionnaires dans Altice : http://www.businessinsider.fr/altice-bourse-engagements-fin-rumeurs-20-novembre-2017

>.

Rapport 3ème trimestre Altice : fichier:////C:/Users/N.DUVOISIN/Desktop/Altice%20Ltd/ALTICE%20Q3%202017%20Results%20Presentation%20vFinal.pdf

>

Perte de vitesse de Tesla http://pro.largus.fr/actualites/general-motors-depasse-a-nouveau-tesla-en-bourse-8622389.html

>

http://www.zonebourse.com/INNATE-PHARMA-35620/actualite/INNATE-PHARMA-chute-apres-une-mauvaise-nouvelle-concernant-lirilumab-25561395/

>

Eviction du PDG de Ford pour manque de performance vis-à-vis de la technologie populaire utilisée par Tesla : http://trends.levif.be/economie/entreprises/si-le-pdg-de-ford-a-perdu-son-job-c-est-a-cause-du-syndrome-tesla/article-opinion-671611.html

>.

Innate pharma perd en valeur : http://www.zonebourse.com/INNATE-PHARMA-35620/actualite/INNATE-PHARMA-chute-apres-une-mauvaise-nouvelle-concernant-lirilumab-25561395/

>

1 Jeffrey Immelt has been replaced by John Flannery at 1er August 2017

2 Assets are valued at 20 billion dollars

3 Shareholders filed a “class action” on November 14 against Altice for spreading false information and reducing debt, which is added to the morose climate within the group

4 Patrick Drahi has managed to extend several repayment terms but will face significant repayments from 2022 onwards for an estimated amount of €9 billion and an additional €7 billion the following year which will only be possible if the group

5 The group will only be able to repay its debts if it manages to generate constant cash flows until 2022, whereas SFR has lost one million customers in one year and is “recovering” by dismissing 5000 employees

6 The company has never reported a positive income statement since its inception.

Nicolas DUVOISIN



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