Why Have Silverlake Axis Ltd’s Shares Fallen by Nearly 30% In 2 Months?

A few days ago when I was scanning through the market, I remembered seeing banking software provider Silverlake Axis Ltd (SGX: 5CP) trading near a price of S$1.00 per share (shares of the firm are at S$1.07 currently).

I did not think much of it initially, but later in the day, a friend of mine brought to my attention that Silverlake Axis’s shares were actually worth more than S$1.45 apiece just two months ago in April. What has happened within the past two months to warrant a near 30% drop in the technology company’s share price?

After looking deeper into the issue, it seems that a financial blogger’s blogpost, titled “Foreword & Introduction: The Daredevil’s Case Guide to Detect Accounting Fraud in Asia” could be a big driver of the company’s share price decline.

The article, which was published on 27 April 2015, had used Silverlake Axis, along with a number of other Singapore- and Hongkong-listed companies, as case studies about possible fraudulent activity in the Asian stock market. There was only a short section on Silverlake Axis, but it did raise questions about the accounting practices of the company in relation to some of its mergers and acquisitions over the past few years.

Silverlake Axis had issued a statement on 20 May 2015 and claimed that the accusations levelled against it by the blogger was “completely unfounded and baseless.” The software firm also stated that it “strongly reject[s] the allegations” and that it’s seeking legal advice in relation to the matter.

While the article has since been removed from the blogger’s page, damage may already have been done to the company. As mentioned earlier, Silverlake Axis’s shares have fallen by nearly 30% over the past two months.

This incident highlights the increasing power that individual bloggers wield in the financial markets. As technology advances and information can be easily spread and obtained, the online community now has a bigger influence in acting as a watchdog over public-listed companies. But, investors have to be aware of the possibility of a manipulation of share prices by members of the online community.

It seems the best way forward for public-listed companies is to be as transparent as possible to their shareholders. This might help prevent possible “attacks” from members of the online community.

When it comes to retail investors, this episode with Silverlake Axis underscores the importance of possessing a deep understanding of the companies you are investing in; a good grasp on the businesses of the shares you own can help prevent you from making emotionally-driven mistakes if any of your shares happen to be singled out for having a lousy business or are falsely accused of impropriety.

As for Silverlake Axis itself, even if the blogger’s accusations are false, the company might still need to come up with detailed explanations to remove any doubts over its accounting practices.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.