What is driving the selloff?

What do people think is driving the recent selloff in GEM given it is down 20%+ from its recent highs?

Personally I think it is due to a combination of:

- being well held by small cap managers
- the potential inclusion in the ASX100 which likely leads to more selling by small cap managers (ex 100 mandates) than buying by large cap managers (unlikely a must own stock in the 100)
- delay of the public release of the Productivity Commission report
- recent blow up of VET

I think quite a few small cap managers got caught on VET and while taking a look across their portfolio of what others stocks have regulatory risk, trade at a big premium to the private market and their roll up business model only works because they trade at a premium ie if GEM like VET trades down, then the roll up model no longer works and the growth implied in the PE disappears leading to further PE compression. Unlike VET there really isn't much scale benefit in child care. Lastly with more capital flowing into child care (recent IPOs) returns are likely to fall on the acquisitions (surely no body believes that GEM is still paying 4x on the same basis as it was several years ago - I think they have changed their definition of forward EBIT).

All that said, I don't think the fundamentals have changed much since the recent selloff started. Assuming they don't have operational issues, can continue to acquire centres around 4-6x EBIT, continue with reasonable cash conversion, good ROE, not over leverage their balance sheet and not go offshore, then now is probably a buying opportunity.

But I think positioning issue described above may well be a headwind for the stock for a while longer. But who really knows!!