Mining services company Monadelphous Group Limited (ASX: MND) continues to see its share price smashed, losing another 3% today.
The company's shares have now lost 39% since the beginning of the year, and 25% alone in the past three months.
There's no denying the company's quality. The company has been far and away the best performing company in the mining services sector over the past decade at least.
But being the best company in a declining sector doesn't mean it's also a good investment.
For the full 2014 financial year, Monadelphous reported a 6.3% fall in net profit to $146.5 million, while earnings per share collapsed by 13% to $1.50. But some investors may suggest that at the current price of $11.45 and a P/E ratio of 7.6x, shares in the company are very cheap.
Monadelphous also paid a dividend of $1.23 last financial year, giving shareholders a trailing fully franked dividend yield of 10.7%. Grossed up that's a 15% dividend yield before tax!
One major problem for the company and its shareholders is that more than 50% of group revenues came from iron ore and coal customers last year. Given the price falls in those commodities and likely future trend, Monadelphous is likely to see reduced revenues in the years ahead from those customers.
And while the company says more than 40% of sales comes from oil and gas sectors, including LNG, many of those projects have either transitioned from development to production, and more are in process. That means far less workers are required and there is likely to be less work for contracting companies like Monadelphous.
As an example, Monadelphous' largest ever construction contract is worth $680 million for the Ichthys LNG project in Darwin. But the project is due to be completed in 2016. The company also has a number of projects worth $250 million for Origin Energy Limited's (ASX: ORG) APLNG project in Queensland, but that is due to come online mid-2015.
Monadelphous itself says revenues will fall next year, and has stated that it will look to expand offshore, and grow its presence in power and water markets.
But that is unlikely to be enough to see earnings and dividends slashed this financial year. What will be surprising is if investors are surprised when Monadelphous reports lower revenues and earnings in 2015, including a very possible cut in the dividend.
As shareholders in WDS Limited (ASX: WDS), Ausdrill Limited (ASX: ASL), Titan Energy Services Limited (ASX: TTN) have already found out, things can turn ugly very quickly.
