The Jumbo Interactive Ltd (ASX: JIN) share price has now lost around one third of its value since October 2019 as investors reassess the valuation of the online lottery ticket reseller.
Back on October 16 2019 it hit a record high of $27.88 but today shares change hands for just $18.18 despite the lotto operator not releasing any material news to the market.
On September 23 2019 Jumbo joined the benchmark S&P/ ASX200 Index (ASX: XJO) of leading Australian companies. This index is heavily tracked by wildly popular passive investment funds that commonly trade on stock exchanges. Index funds are mandated to buy index constituents regardless of valuation and Jumbo's vertiginous rise to October 16 may be related to index fund buying.
Market professionals have also suggested that day traders, professional traders, and algorithmic programs may also be front running the index funds in buying securities they know via public information (released by S&P for example) will be added to an index. This is in order to potentially sell holdings onto index funds or market participants at a profit after they're added to the index.
Often the relatively low daily trading volumes (i.e. liquidity) of new index members can add to the wild price swings first higher and then lower.
Over FY 2019 Jumbo posted a net profit of $26.4 million on sales of $65 million. It's also tipping investors to expect more profit growth in FY 2020.
