Shares of Cover-More Group Ltd (ASX: CVO) fell by as much as 12.3% today, hitting a low of $1.71 before recovering slightly to trade at $1.81 per unit. In comparison, the benchmark S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has rallied, jumping more than 1.3%.
The stock's fall can be attributed to the profit downgrade delivered by Flight Centre Travel Group Ltd (ASX: FLT), which forecast profit before tax to be between $360-$390 million, compared to previous forecasts of $395-$405 million.
In its update, Flight Centre said: "Trading conditions in Australia remaining challenging following the leisure travel spending slowdown late in 2013/14. This slowdown has led to lower than normal leisure sales growth in Australia during the five months to November 30, 2014."
As Flight Centre is Cover-More Group's largest distribution partner (with an exclusive distribution agreement until 2019) lower sales growth is likely to directly impact Cover-More's own revenues, which would explain today's heavy decline.
Until Flight Centre recognises stronger trading conditions, investors could continue to doubt Cover-More Group's ability to meet its profit forecasts. Should its shares fall any further, I'll certainly consider taking out a position. Until then however, there is another stock I believe is an even greater buy.
