After the company stated that it is delaying the filing of its annual 10-K report, shares of Healthcare Services Group (NASDAQ:HCSG), a provider of outsourced housekeeping and dining services for the healthcare industry, dropped 14% as of 2:55 p.m. EST on Monday.
Management revealed today that it received a letter in November 2017 from the Securities and Exchange Commission (SEC) inquiring about how the company calculates its earnings per share. The company also received a subpoena from the agency in March of 2018 related to the matter.
Management stated that it is providing the agency with all of the necessary documents that have been requested and that it has hired outside counsel to conduct an internal investigation.
The company believes that the internal investigation will be completed quickly, and it plans on filing its 10-K within 15 days of its due date. Management also stated that the delay is not expected to alter its most recent earnings release for the quarter and year ending December 2018.
The unexpected news is causing traders to head for the exits.
It is never good news when the SEC requests to take a closer look at your accounting practices. However, investors are not yet working with enough information to gauge whether this is thesis-altering news. Since panic selling is rarely a good idea, the best move that bulls can probably make today is to watch this story closely and wait for more information to surface.