Financial leverage works both ways

Vocus has remained under pressure for an extended period of time, with the share price sold aggressively as collapsing earnings and an over extended balance sheet have collided. While the financial leverage of the company has amplified the share price losses, people need to remember that this leverage can operate both ways.

Specifically, if on the 22nd Aug when full year results are announced the earnings show ANY sign of recovery (or some may argue even just stabilization). Then any subsequent recovery in the share price will benefit from the same financial leverage that impacted things on the way down. Financial leverage will enhance the return on equity, which will translate into additional price appreciation. The ride up might just be as fast as the ride down...