At the beginning of the short Easter week, two companies caught my eye.
One is a recent Initial Public Offering (IPO) that has experienced little less than a staggering fall from grace.
Having unquestionably hit rock bottom, is Vocation Ltd (ASX: VET) capable of a rebound?
The other is a high-flying litigation firm, which seemingly bounds from strength to strength and has enjoyed unprecedented price growth – up 67% in the past year, and 387% over the past five.
Can Slater & Gordon Limited (ASX: SGH) continue its rapid growth with today's acquisition, or is it set to slow?
Vocation was a stock identified as a likely turnaround in an article a while back, based on the nature of its business and its catastrophic fall.
With a new CEO, a successful strategic review under its belt and a lower debt burden, investors are certainly piling back into Vocation shares – up more than 100% last week, and another 20% already this morning.
Although the company definitely appeared undervalued, I advise readers to remain cautious and remember the stock's troubled history.
Some businesses, like Woolworths Limited (ASX: WOW) establish trust in management and the company's culture by their performance, integrity, and transparency over time.
There's no question in my mind that I would instantly buy Woolies shares if it experienced a six-month period like Vocation has just had.
But Vocation hasn't built the credibility that Woolworths has – in fact, it's being sued for failing to meet its continuous disclosure obligations.
Factor in the sale of many of its businesses, a new management team, and a possible re-branding of the company, and Vocation is a big unknown.
Potentially a good investment, but I would be wary of buying in at a time when the market is hyping the company.
(You can find Motley Fool contributor Ryan Newman's coverage of Vocation's recent rise here)
Slater & Gordon Limited this morning announced it was acquiring the Professional Services Division ('PSD') of Quindell plc in return for around $1,225 million and an earn-out condition based on the performance of legacy noise-induced hearing loss lawsuits.
Slater & Gordon are going to fund the acquisition with a 2-for-3 pro-rata share issue, which will raise A$890 million, while the remainder is funded through bank debt.
The price puts a Price to Earnings (P/E) multiple on the PSD acquisition of 6.9, substantially lower than Slater & Gordon's current P/E of ~24.
If recent signs are any indication – class actions coming from every quarter – society is becoming increasingly litigious, with no signs of that abating.
That's no bad thing, if you're a Slater & Gordon shareholder.
While the company does look expensive on conventional metrics, strong growth in its sector and the ability to make acquisitions like Quindell's PSD should continue to deliver great outcomes for shareholders over the near to medium term.
(You can find contributor Owen Raskiewicz's full coverage of the acquisition and share issue here)
