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Why Diamond Resorts International Inc.'s Stock Plunged 11% Today

By Travis Hoium – Jan 25, 2016 at 12:42PM

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A New York Times article is shining a light on the darker side of Diamond Resorts International Inc.'s business.

What: Shares of timeshare operator Diamond Resorts International Inc. (NYSE: DRII) fell as much as 11% in early trading Monday after the company was featured in an article in The New York Times.

So what: The article highlighted some of the high-pressure tactics Diamond uses to close sales and keep generating fees for customers. High-pressure sales tactics aren't uncommon in the timeshare industry and an email from Diamond to investors dated today says that the company has high satisfaction ratings from customers and follows industry practices.

A greater concern long term is that high-pressure timeshare sales tactics and the contracts that come with them will come under pressure from the Consumer Financial Protection Bureau. There are rumors around the industry that the agency will be looking to increase oversight, which could threaten their extremely lucrative business.

Now what: Oversight from regulators could put a lot of financial pressure on timeshare companies and disrupt their otherwise lucrative business model. It's why shares have plunged from a 52-week high of $35.42 to a new low of $19.90 today. I don't think the pressure from investors is over, and given the negative publicity, Diamond Resorts isn't a company I would feel comfortable buying into today.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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