Why Gage Road Brewing Co Limited shares plunged 29% today

Shares of Gage Road Brewing Co Limited (ASX: GRB) are getting absolutely crushed today.

While the broader market has remained mostly flat, the brewer’s share price has dropped 29% to just 4.9 cents – its lowest price since February.

The heavy fall came after the company released an update to its operations for the third quarter this morning. The company noted that total sales volume was down 16% on the prior year-to-date comparative period to 950,000 carton equivalents, with sales dropping off in the third-quarter due to high customer stock levels. Notably, it is confident this trend will be reversed in the final quarter.

Cash receipts for the quarter were well down for the quarter at $6.6 million (compared to a total of $21.8 million in the first-half), with a negative cash flow from operations of $661,000.

Indeed, shareholders of Gage Road have every right to be disappointed in the company’s performance. They’ve been taken on a roller-coaster ride in recent years (they traded as high as 29 cents in 2013 and a low of 3.7 cents in 2015), with little certainty regarding the company’s future.

Although the risk vs. reward trade-off has certainly improved thanks to the plunging share price, Gage Roads is still a risky proposition that investors may be wise to avoid. This is exacerbated by the fact that Woolworths Limited (ASX: WOW) is one of Gage’s major customers so if something were to happen to that contract, an investment in Gage Roads could prove catastrophic.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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