Wockhardt , a pharmaceutical company that had once come close to bankruptcy has been on a free fall in recent times. Today, the stock reached the limit of 20% which is the maximum a stock can fall in a single day unless the stock is part of any Index or is available in derivatives segment.
Forex troubles in 2009 pushed the company deep into losses. Do check out the following links for the stories around those times,
The company was able to come out of the mess by selling few hospitals to Fortis and this in a way lighted a rally in the stock taking it from sub 200 levels to its all time high of 2168.80 with very little resistance or reactions on the way. In fact in 2012, it saw the stock closing higher every month from January to November before it saw a slight correction in December.
The stock restarted the rally and gained another 27.5% in the first quarter of 2013 (on back of a gain of 468.9% in 2012). Just before the stock hit its peak, we saw Bank of America come out with a BUY call on the stock. It was laughable that they seemed to have found value in a stock that had appreciated so much in so short a time. Either way, that was the last hurray for the stock as it started its downward journey.
While the downward journey has not been as smooth as the upward, it has not been a free fall either with the stock falling continuously without much of a break.
Technically, the stock has a strong support zone of 465 – 550, but the question one needs to ask is, is it worth a buy even at those levels and this is not based on fundamentals or even technicals but the reality that stocks which have collapsed like Wockhardt rarely get buying support at the previous break out levels.
There is another interesting thing that should worry investors – pledge by the promoters. The promoters hold 73.54% stake in the company of which 87.06% if pledged. Now, the risk as we have seen in a lot of cases with the most recent one being that of Gitanjali Gems is that if the pledged shares are sold (or even an attempt is made), it’s quite easy to see the share price going down to double digits. The interesting thing about this pledge is that the quantity under pledge did not go down even as the share price spiked from 200 to 2000. A old article on the pledge can be read here
All in all, I believe it can be a high risk trade / investment even at support levels since the overhang of pledged shares hitting the market will stay till the pledge is revoked. I personally would stay away despite the attractive valuations.
A technical view by Nooresh can be accessed here