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Why Shares In Quindell plc Plunged Today

quindellAlthough we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in Quindell (LSE: QPP) fell by more than 13% in early trade this morning, following a story in the Financial Times that it has “run into trouble over one of its biggest contracts, a joint venture with the RAC”.

So what: The insurance technology outsourcing provider revealed the partnership back in April, which intended to install more than two million tracking devices in cars, at a rate of 50,000 per month, in a move that could have revolutionised the car insurance industry. But as we find ourself in the month when the venture was due to begin roll-out, little progress has taken place and the FT reports that “talks about restructuring the tie-up have stalled”.

According to the Financial Times, despite both companies already putting up £15m of an estimated £85m total for the project, one issue blocking the way forward concerns warrants that the RAC received as part of the deal, “which would give it the right to receive 250m share in Quindell when the latter’s share price reaches 50p or more in the two years following the agreement”.

Shortly after the deal was made, Quindell shares — priced at 45p at the time of the agreement — were struck by short-sellers following the now infamous report by Gotham City Research, and later undertook a 1-15 share consolidation split, essentially valuing Quindell shares a 14p per share pre-consolidation price whereas they closed yesterday at 204.5p. After today’s sell-off, the shares would have to quadruple in order to reach 750p for the RAC to be able to exercise the warrants.

Now what: The venture with the RAC was one of Quindell’s largest contracts, and faith in the company has been shaken by these revelations. However, the likes of Fidelity have backed Quindell in recent weeks, and the company issued positive half-time results mid-July. Of course, the decision to buy, sell or hold QPP rests with you.

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Sam Robson has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.