Why is the Nuix share price up over 20% in five sessions?
We look at Nuix’s recent share price performance, its interim results, the tech sell off, and some research behind index rebalancing.
Nuix share price rebounds as tech sell-off abates
In early March, we unpacked Nuix's interim results, noting that at the time the stock had fallen well off its 52-week highs, trading at a little over $6 per share.
The stock would continue to drop after we published that article, dropping to its current 52-week low of $4.63 per share.
Since then however, the stock has rallied firmly, gaining over 20% in the last five trading sessions – as tech stocks rebound. Nuix closed Monday at $5.86 per share.Nuix closed Monday at $5.86 per share.
What started the Nuix sell-off likely had less to do with macro considerations and more to do with the company’s own interim results and full-year guidance.
As part of those interim results, Nuix reported interim revenues of $85.3 million (-4%), pro forma earnings (EBITDA) of $31.6 million (+3%) and pro forma profits (NPAT) of $9.5 million.
Looking ahead, Nuix's management, at the time said they expected to hit their FY21 guidance, which included full-year revenues of $193.5 million, full-year ACV of $200 million and pro forma EBITDA 0f $63.6 million. We discuss why the market may have potentially felt uncertain about that guidance here.
Beyond those points, macro concerns, which chiefly centred on (and continue to centre on) rising inflation and interest rates, likely exacerbated the sell-off in Nuix stock.
Here the entire tech complex was sold off and remains under pressure. To illustrate that point, market darling Afterpay trades some 32% off its 52-week high, while cloud accounting software company Xero is down some 28% from its own peak.
Will the sell off in tech persist? Only time will tell.
Despite old economy stocks outperforming the Nasdaq, it should be pointed out that sentiment remains more optimistic overall, with the fear and greed index -- which broadly measures market sentiment, currently at 59, signalling 'Greed' opposed to ‘Fear’.
And in markets news, on March 12, it was revealed that as part of the upcoming quarterly rebalance of the ASX 200, Nuix would be included in the S&P/ASX 200 Index, prior to the market open on March 22.
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Does index inclusion even matter?
The National Bureau of Economic Research, in 2013, made an intriguing observation about the impact of index inclusion on a company’s share price, saying:
‘Past studies have found that companies added to the S&P 500 experience increases in their share values, and yet recent studies with the largest samples also have shown that there are no corresponding declines in share values when firms are deleted from that index.’
The National Bureau of Economic Research added that share price spikes following a stock's index inclusion:
‘Might be associated with an increase in earnings forecasts and improvements in realized earnings at the time a firm is added to an index. Also, some scholars have theorized that lingering "investor recognition" of firms that were once on an index may partially explain why their share prices don't fall after deletions.’
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