Why the Nearmap (ASX:NEA) share price continues to sink

The Nearmap Ltd (ASX: NEA) share price is trading lower on Monday.

In early afternoon trade, the aerial imagery technology and location data company’s shares are down 3% to $1.69.

This means the Nearmap share price is down 18% over the last two weeks.

Why is the Nearmap share price under pressure again today?

Investors have been selling Nearmap’s shares today after it responded to an ASX Query this morning.

Judging by the regulator’s queries, it appears as though it was concerned with the timing of Nearmap’s guidance upgrade and litigation-related trading halt request.

Nearmap announced an increase to its FY 2021 guidance on 4 May following the market close. The next morning the Nearmap share price surged higher in response to it before being hurried into a trading halt just over an hour after trading commenced.

Unfortunately for anyone that invested during that first hour, the Nearmap share price crashed lower after returning from its trading halt.

What did Nearmap say?

The ASX asked Nearmap when it first become aware of the litigation news.

It responded: “At 9.58am AEST on Wednesday 5 May 2021, NEA’s General Counsel reviewed an email delivered at 9.55am AEST on Wednesday 5 May 2021. The email, from lawyers in the United States, attached a 96-page complaint which was filed in the United States District Court (District of Utah, Northern Division). The lawyers in the United States had received the complaint via an alert service to which they had subscribed. This was the first NEA became aware of the Information.”

After which, the company revealed that its Chairman and CEO were notified promptly.

It explained: “After NEA became aware of the Information at 9:58am AEST on 5 May 2021, NEA took steps promptly and without delay to assess whether the Information was required to be disclosed under Listing Rule 3.1. These steps included: 1. notifying the CEO and Chairman promptly and without delay of receipt of the Information; 2. reviewing and considering the Information, being the 96-page complaint raising technical legal matters relating to technical aspects of US law, which was received by NEA without any forewarning; and 3. seeking legal advice from external counsel due to the complexity of the Information.”

“At 11.01am AEST on 5 May 2021, having undertaken the above steps, NEA made an initial assessment and formed a view that the Information could potentially be material to the market price of NEA’s securities but it required more time to conclude that consideration and prepare an announcement. NEA’s CEO and Chairman determined at that time that NEA should request a trading halt to manage its disclosure obligations,” Nearmap concluded.

This explanation appears to have satisfied the ASX team, though it hasn’t been enough to stop its shares from sliding.

Is the Nearmap share price in the buy zone?

According to a note out of Morgan Stanley, its analysts believe the Nearmap share price is great value.

Following the litigation news, the broker retained its overweight rating and $3.20 price target on its shares. This implies almost 90% upside over the next 12 months.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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