The Massive Impact of Data Breach on Share Prices
Equifax Industries is a credit reporting organisation, which works on the credit reporting of the consumers. It is one of the main three credit reporting agencies in the United States of America, along with Experian and TransUnion. It is entrusted with the job of maintaining the vital credit reporting information and other details about the individual citizens of the USA. It mainly collects important information of over approximately an 800 million individual customers and clients and also from more than 80 million business entities and prepares reports on their credit worthiness. It also ventures into the activities of credit monitoring and also into prevention of fraud related activities and services. However, it is being subjected to share price changes, like rest of the company’s worldwide, for a variety of activities. In this question, an analysis of the share price performance of the company for a period of one year has been discussed from the period ranging from 1st January 2017 to 1st January 2018. The comprehensive information in the form of graph has been provided below:
The above graph has been reminiscent of the massive impact, a data breach could make upon the share prices of any company. During the month of September, 2017, a massive data breach had taken place in the history of the United States of America. It was the result of the massive cybercrime identity theft of data of approximately 145.5 million customers in the US.
b.) On September 7, 2017, a major cybercrime theft of credit data of millions of customers in the US had hit Equifax. Along with this, the information of approximately 44 million British citizens and 8000 Canadian citizens had also taken place. It was regarded as the biggest data breaches in the history.
The impact of this data breach was felt all over the United States of America. The breach had compromised vital information about customers ranging from names, social security numbers, birth dates and addresses. Additionally, credit card details of large amount of consumers in the US was also compromised.
- The biggest immediate impact of the data breach was the loss of investor confidence (com, 2018). The company had faced massive criticism from the media, customers, investors, business houses and government.
- The share prices had dropped to a massive 14% from 0.94% on the 8thof September, a day after the breach had come to the spotlight. The share prices as on the day of the disclosure of the data breach was 142 and it had come down to a significantly lower level of 122.4 USD.
The Company had lost its reputation of being regarded as the most trusted steward of customer data. The breach had a negative impact on the customer’s perception of the company, which was entrusted with the responsibility of protecting the personal details of the individual details of the customers (Roderick, 2014). According to research analysts, this could cost the company millions of material wealth as the case could drag the company in the public spotlight in a negative manner for many years to come (Mikhed and Vogan, 2018). Due to this loss of reputation, the share prices had a significant fall and it was regarded as the largest single price drop since August 1999.
Efficient Market Hypothesis: An Analysis
The impact of the massive data breach on the share prices of Equifax has been comprehensive. One of the most important stock prices theory, is the ‘Efficient market Hypothesis’ , which states that there are a large number of rational, pragmatic and profit driven investors in the market, who invariably react very quickly to any release of information. In case a new information about the share or the company comes into the limelight, the investors reassess the intrinsic value of these shares and the activities of the company, and adjust the price accordingly (Kim, 2018). Therefore, at any given point of time, the stock price is an impartial and an unbiased reflection of the information which is doing the rounds in the market place. In this case, the impact of the release of information about data breach, had reached the ears of the investors, they had assessed the intrinsic value of the shares of Equifax, in the light of the loss of faith in the confidence of the company. AS a result of this, the prices had seen a major fall (Solove and Citron, 2017). Thus, it could be seen that the effect of the data breach on the share prices, had followed the norms of the efficient market hypothesis, as a result of which there are no significant difference between the theoretical and practical aspect.
- The current price of BHP Billiton Limited (BHP) is at 50.41 USD. The comprehensive chart review along with the comparison with the Australian Security Exchange had been provided below:
The changes in share price of BHP along the five year period has been an eventful one. The share prices of BHP in the year 2014 was almost at par with the ASX index. Since 2014, the company’s share prices have been performing at a slightly lower level than the ASX index as can be seen from the graph (Finance.yahoo.com BHP, 2018). Gradually, this gap in the performance, has been increasing and this trend has continued to grow till now. The share prices has consistently been below the 25% mark for the last two years from 2016’s slump. The rise since then has happened mainly because of two reasons; firstly, the iron ore price has increased to 50%, although, only time would tell, if this is a sustained move or just a temporary bounce from the bear market.
- The main driver of the growth of the prices of BHP since the close of 2016, is the 50% increase in the prices of the iron ore. The prices of iron ore have recently reached approximately 80$ per ton and this rise has been huge in the recent times. This has set a benchmark for the price of iron ore and it has also defied the expectations and assumptions of the industry experts. Analysts are now predicting that the prices would remain high till the mid of 2018.
The company has been undervalued as can be seen from chart given below. The company has seen a lower P/E ratio since the beginning of 2017, and it has dipped down to a low of 28.60 in May, 09. As the graph has been showing that the P/E ratio, for the most part has been relatively high, this dip in the ratio suggests that the company’s stocks are undervalued.
- The predicted share price as on the date of 31stDecember, 2018 has been done with the help of the dividend discount model. It is predicted that the share price on that date will be $39.72.
- In the next couple of months, it can be predicted that the company share price will fall substantially. As a result of which, it has also been that the dividend per share has fallen and this trend will continue till the very end of 2018. Moreover, the growth rate in dividend per share has fallen substantially. In this case, it is being advised that it is better to sell of the shares and not to buy them, as it would not be beneficial on the part of the investors.
- When the market efficiency of BHP, comes into the picture, it could be seen that iron ore market is not expanding at the same rate on which the prices of iron ores are increasing. This is reflected in the dividend and the performance of the shares of the company. The share prices has been continually on a decreasing trend. This also applies in the case of dividend, as it can be seen from the above calculation and analysis that the dividend growth rate has fallen continuously and will continue to do so. The market has also slowed down, the effect of which can be seen in the share as well as the dividend price of the company. Thus, this recommendation of selling of the shares of the company, in the wake of the decline in the share prices, has an impact on the market efficiency of the iron ore and mining market. The overall efficiency of the market will be on the decline and it does not bode well for the company in the near future.
References:
Finance.yahoo.com. (2018). BHP : Summary for BHP Billiton Limited – Yahoo Finance. [online] Available at: https://finance.yahoo.com/quote/bhp?ltr=1 [Accessed 12 May 2018].
Kim, T. (2018). Equifax shares plunge the most in 18 years as Street says breach will cost company hundreds of millions. [online] CNBC. Available at: https://www.cnbc.com/2017/09/08/equifax-plunges-as-breach-will-cost-company-hundreds-of-millions.html [Accessed 12 May 2018].
Mikhed, V. and Vogan, M., 2018. How data breaches affect consumer credit. Journal of Banking & Finance, 88, pp.192-207.
Nytimes.com. (2018). Senators Seek Answers on Equifax Breach, Including Details on Stock Sales. [online] Available at: https://www.nytimes.com/2017/09/11/business/equifax-breach-stock-sale.html [Accessed 12 May 2018].
Quotes.morningstar.com. (2018). [online] Available at: https://quotes.morningstar.com/stock/analysis-report?t=0P0000DLKV®ion=zaf&culture=en-US&productcode=MLE&cur= [Accessed 12 May 2018].
Roderick, L., 2014. Discipline and power in the digital age: The case of the US consumer data broker industry. Critical Sociology, 40(5), pp.729-746.
Solove, D.J. and Citron, D.K., 2017. Risk and Anxiety: A Theory of Data-Breach Harms. Tex. L. Rev., 96, p.737.
Timson, K., 2015. Uses and implications of virtual data room features for corporate real estate due diligence. Corporate Real Estate Journal, 5(1), pp.21-33.
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