A pre-earnings announcement from Peloton Capital has backfired spectacularly after the analyst’s recommendations moved in exactly the opposite direction predicted. In a note to clients last Tuesday, Shane Gavegan, head of institutional equities, outlined two key recommendations: to buy Zip Co and short Sonic Healthcare.
The rationale for buying Zip Co, an ASX-listed payments group that provides buy now, pay later services, was based on perceived positive US results and the belief that small-cap funds would react favourably to any positive news. Conversely, Gavegan recommended shorting Sonic Healthcare, a pathology services provider, citing pressure on household healthcare budgets and government spending cuts.
However, on Thursday morning, Zip Co reported disappointing results, missing guided numbers and revealing increased debt, leading to a 35 per cent share price plunge in the first hour of trading. Simultaneously, Sonic Healthcare reported higher-than-forecast revenue and profits, accompanied by an increased dividend, causing its share price to surge by 10 per cent.
The simultaneous opposite movements of the two stocks made for a memorable miss for Peloton Capital and its clients, with Gavegan’s predictions proving precisely incorrect. The events highlight the inherent difficulty in predicting short-term market movements, particularly around earnings announcements.
