The Worst Day Since 2011 Leaves Pandora A/S Investors in Shock

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(Bloomberg) -- Not since August 2011 has Pandora A/S lost more of its value in a single day.

The Danish jewelry maker, which became a favorite target of hedge funds last year, sank 16 percent after revealing weaker numbers than investors and analysts were expecting. Pandora’s dramatic slowdown in sales to China, spelled out in its first-quarter results on Tuesday, was a particular disappointment. All in all, the share move wiped about $1.6 billion off its market value, leaving it worth less than $10 billion by the end of the day.

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“We invest using quant trading models, but we’re still surprised by the stock market reaction,” said Jacob Loiborg, chief portfolio manager at Sparinvest, which has about $12 billion in assets under management.

Loiborg says Pandora looks “expensive” and Sparinvest had in 2017 “chosen to go underweight” the stock. “The momentum is weak.”

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The big question with Pandora remains whether the hedge funds betting against it will ultimately win the day. According to regulatory filings, these include Coatue Management, AQR Capital Management, Lone Pine Capital, Indus Capital Partners, Melvin Capital Management and Scopia Capital Management. In total, short interest in Pandora represents well over a tenth of its market value.

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Pandora shares continued to decline on Wednesday, falling as much as 5.3 percent in Copenhagen.

“What surprised us, and the market, was a significant slowdown in China,” Dan Gianera, an analyst at Deutsche Bank AG, said in a note Wednesday, cutting his recommendation on the stock to hold from buy.

For much of 2017, the concern was that Pandora wasn’t communicating adequately with the market, and not providing a good enough breakdown of specific segments. The company promised to address those concerns and revamped its communications department in response. It also held an investor day in January to try to give analysts the information they wanted.

But Tuesday’s performance suggests the disconnect between what the company thinks is happening and investor perceptions is as big as ever, according to Per Hansen, an economist at Nordnet. He says the first-quarter report offered mostly “food for Pandora skeptics.”

Chief Executive Officer Anders Colding Friis signaled he found the market’s reaction hard to understand. “The year has started as we had expected and like we told the market earlier,” he said by phone.

But with the market determining his company’s value, Colding Friis may need to devote some time to figuring out why Pandora is so badly misunderstood.

Ultimately, management “also looks at the stock price and we obviously would like to see the stock go up,” he said.

©2018 Bloomberg L.P.

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