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Why USA Technologies, Inc. Stock Jumped Thursday

By Daniel Sparks – Updated Sep 13, 2018 at 12:14PM

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Was this week's sell-off an overreaction?

What happened

Shares of cashless payment company USA Technologies (USAT -1.70%) rose higher on Thursday, climbing as much as 15.8%. As of 11:40 a.m. EDT, shares were up about 13.1%.

The stock's gain reflects investors' attempt to accurately price in the risk associated with an internal investigation, announced earlier this week, of some of the company's accounting and financial reporting controls. When news about the audit first broke on Sept. 11, shares sank about 34%. But today's double-digit gain suggests some investors believe shares were oversold.

A chart showing a stock price moving higher

Image source: Getty Images.

So what

On Tuesday, USA Technologies released a statement saying it was delaying its 10-K filing as the company conducted its audit.

The Audit Committee of the Company's Board of Directors, with the assistance of independent legal and forensic accounting advisors, is in the process of conducting an internal investigation of current and prior period matters relating to certain of the Company's contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements.

It makes sense for shares to trade lower as investors price in the risk of this investigation. Apparently, however, some investors believe the Street's initial response was an overreaction.

Though shares have recovered some, they are still down about 25% from the trading day prior to news of the audit.

Now what

In a best-case scenario, the investigation of USA Technologies' accounting and financial reporting controls proves unfounded. But if things don't go well, USA Technologies will likely face penalties in lawsuits and may need to restate its financials.

In its press release about the audit, USA Technologies said its audit committee is working with its independent advisors to complete the investigation "in as timely a manner as possible." In addition, USA Technologies said its 10-K will have to wait until the audit -- and an assessment of the results of the audit -- is complete.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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