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Why Magnum Hunter Resources' Shares Dropped

By Travis Hoium – Apr 17, 2013 at 4:50PM

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Is this meaningful or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Magnum Hunter Resources (NYSE: MHR) dropped as much as 27% today after the company dropped its auditor.

So what: It was disclosed late yesterday that Magnum Hunter has dismissed PricewaterhouseCoopers as its auditor. The auditor said it had found material weakness in internal controls and had requested additional information about the value of the company's oil and gas assets.

Now what: The moment an auditor discloses material weakness, investors run for the hills, so that's a big part of the move today. What's concerning for investors is that the company dismissed the auditor instead of solving the reported problems, a sign that maybe accounting standards aren't up to par. I'd stay far, far away from this stock, because any time a company fires an auditor or finds weakness in accounting procedures, there's trouble coming.

Interested in more info on Magnum Hunter Resources? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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