DX: Market tantrum

I’ve added to my DX Group position (London Stamps) after it fell more than 70% on the day of a profit warning. The news seems that the business is not doing as well as planned but it’s in no way catastrophic. It was already pretty modestly priced.

It’s now priced for a high chance of total failure, which seems an excessive reaction. Maybe the news being published during the trading day rather than before the open as usual triggered some weird conditions. Looking at the trades log on the London Stock Exchange website, it seems only £30K worth of trading in a post-announcement auction (uncrossing after 6 minutes post-announcement break) explains the bulk of the gap (80 to 55), and then the post-gap momentum may get its own life.

Usually things get worse before they get better after a profit warning (the earnings announcement drift anomaly) but in this case I’ve topped up on the day in case there’s a rebound early next week as bottom fishing value investors go back to their desks. I’m happy to keep the stock until it succeeds or fails more convincingly in any case.

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