Can't Trust Hain Celestial After This Disaster

I have recently written a few bullish pieces on Hain Celestial (HAIN) primarily because of the company’s acquisition prospects. Given the consolidation in the snack food segment, Hain Celestial was a potential acquisition candidate for several companies.

The stock even rallied on Friday heading into the earnings report as over 12,000 of the Hain Celestial’s September $55 calls were traded as compared to a total open interest of about 7000. Given the bullish trend, investors were expecting Hain Celestial to report a strong quarter and throw some light on the potential acquisition of the company.

However, Hain Celestial’s chances of getting acquired are finished now.

The company recently said that it is delaying the release of its Q4 and FY 2016 financial results, which is never a good sign. Shares of Hain Celestial are down almost 25% in AH trading as of writing this article. The selloff may seem a bit exaggerated, however when the company also said that it does not expect to achieve its previously announced full-year guidance, which justifies the downfall.

Things were looking very good for Hain Celestial last week, however delaying the earnings report is always a bad sign. Moreover, there’s no chance of Hain Celestial getting acquired after this disaster. Accounting irregularities is probably one of the worst things that a company can do. Moreover, it makes it difficult for investors to buy the stock as they won’t trust Hain Celestial’s management anymore. So, Hain Celestial may continue experiencing selling pressure going forward.

That being said, I still believe Hain Celestial was a great acquisition target. In fact, due to the odd timing, I think Hain Celestial was busted by the company looking to acquire it. It is obvious that a potential suitor was going through Hain Celestial’s books and found out the discrepancies.

Bulls were rightly expecting the company to move ahead on the acquisition front and for retail investors, it is very difficult to foresee such an event. However, as mentioned above, Hain is not an acquisition play anymore as the company has killed its chances of getting acquired. Investors can still buy the stock for its core business or to ride the dead cat bounce rally, but the acquisition play is out of the window.

Given the steep pullback, I do expect Hain Celestial to bounce a bit higher in the coming days, so investors looking to mitigate their losses can consider buying the stock or call options.

Published on Aug 17, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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