Good morning.

As Lord Lee described at Mello Derby, every now and then you wake up and look at your screen, and get that sick feeling when you see something in your portfolio has plunged, therefore there must have been a profit warning. Scanning the prices on my iPhone, one jumped out at me - IndigoVision - it should have started with a 4, but today it starts with a 3, which only means one thing - either gremlins have seized the controls at the software company providing the prices, or there's been a profit warning.


Indigovision (LON:IND)

Share price: 381p
No. shares: 7.6m
Market Cap: £29.0m

It's a profit warning I'm afraid. The first step is to shake off the emotional response of disappointment/despair- that just clouds your judgment. The task at hand is to reassess the valuation & prospects of the company, based on the new information available, and make a considered decision on whether to sell, hold, or buy more.

First I check whether the price has stabilised, and what price change & volume has occurred so far today - yes it has stabilised, and the price is currently down about 16% at 381p mid-price. That tells me that the market considers the news today to be bad, but not a disaster. A typical profit warning, where trading has badly deteriorated, can be expected to instantly scrub off 30% of the market cap, so a 16% drop here suggests to me that the company has announced disappointing, but not disastrous news.

The market quickly adjusts the price of any share that puts out fresh information, so unless something has structurally changed at the company (i.e. things are going to get much worse in future), then the price will have already corrected to a new level which by and large reflects the new information. There may be a buying opportunity if leveraged positions are being dumped at any price by the spread betting companies, but that's clearly not the case here. Total volume reported so far is 69,952 shares, about £273k-worth, based on an average price of about 390p.

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Looking at the reported trades, a flurry of small retail sells in the first 8 minutes of trading this morning took the price down to the current level, so anyone with any decent-sized holding would not have been able to sell anyway.…

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