The THG (LSE: THG) share price plunged 52% in October, making it a month the company’s investors would rather forget.
Sometimes, stocks fall without any apparent reason, but with THG, there is no need to guess what went wrong.
The company faced a barrage of criticism from analysts and investors last month for a range of reasons. Everything from a lack of information from management on the group’s growth prospects to corporate governance concerns and a profit warning hammered the stock. And at the beginning of November, a significant shareholder (BlackRock) dumped half of its 10% stake in the e-tailer.
Last month, everything that could have gone wrong for the business did. The only thing that did not happen was a liquidity crisis. The company’s investors will be hoping this is not the next headache on the horizon.
However, despite all of the headwinds and challenges the firm is facing, I am encouraged by the recent progress it has made to address the market’s concerns.
Addressing concerns
Over the past three weeks, the company has made some substantial changes to its corporate governance to appease the market.
The CEO and founder, Matthew Moulding, has given up his controversial “golden” share to improve corporate governance. This controlling share initially gave him ultimate control over the company and decisions.
Under current rules, it also prevents THG from obtaining a premium listing on the London Stock Exchange. Therefore, it cannot be included in the FTSE.
As well as this change, the group has also strengthened its board of directors. It has appointed an independent chair. This is in line with the Corporate Governance Code and will also help prepare the business for a premium listing.
Further, Andreas Hansson, an executive at the Japanese investment group SoftBank, which invested £530m in THG this year, joins as a non-executive director.
I think all of these three developments show the team at THG is serious about reforming the group. In my mind, actions speak louder than words, and these are important actions for the company to take.
THG share price outlook
As well as meeting the market’s concerns about corporate governance, THG has also been trying to alleviate worries about its growth.
In a trading update published towards the end of October, the group noted a 38% rise in revenues for the three months to the end of September.
These numbers suggest to me that the company is fundamentally strong, so it has plenty of potential to change the opinion of the market.
Of course, this is not guaranteed. Any number of factors could erode hard-earned trust. Investors could start selling again if the company rows back on its government changes or announces further unforeseen costs.
Despite these risks, I would buy the shares as a speculative turnaround investment. The e-tailer has built a stable of notable e-commerce brands, and I think it is well-positioned for growth in the years ahead.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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