The Hut Group (LSE:THG) share price fell by over 40% yesterday down to a low of 248.6p. This level marks the lowest the stock has seen. What caused such a large decline in just one day?

Company unsure regarding reasons

The online retailer has stated they are unsure what caused the decline in price as they have not released any news or information. When Matt Moulding, the founder of The Hut Group, started speaking to investors on a call, he wanted to reassure them about the companies Ingenuity platform. This had been the catalyst behind some short selling attacks on the company recently. But this had the opposite affect he wanted. The share price was down 2% before the call, and started selling off when he spoke, with shorts pilling in and investors selling in fear.

Oversold?

THG said that since listing in September 2020 it has consistently delivered results ahead of targets. It also has a “very strong liquidity position” going into a peak trading season. THGs technology was the focus when they listed their IPO. They would be able to sell this to competitors. The system, called Ingenuity, would set THG in a similar way to online supermarket Ocado or energy supplier Octopus, who received massive valuations from selling their technology to others in the sector. But investors have been unsure about what exactly Ingenuity does. This was in part what Tuesday’s meeting was called to explain. Following the share price collapse, analysts noted investors now seem to think Ingenuity is near worthless.

This makes us believe that the company is not oversold and is indeed going through a needed revaluation. Softbank had had said it would invest in Ingenuity, with THG aiming to rent out the system to other parties. Softbank had offered a 20% stake in the asset for £1.6B, valuing the total at £4.5B. The companies market cap now sits at £3.5B. Now it is uncertain if THG will complete a deal to sell part of their system, adding more uncertainty to the company.

What should you do?

If you are an investor, I hope you were able to avoid most of the drop. I do not think it is worth going near until more is known. If you are a short seller, I believe the momentum and rising fear provide a good thesis to capitalise on.

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