Buyer beware! Cardno Limited shares crash again

What: Shares in leading infrastructure and environmental services provider Cardno Limited (ASX: CDD) have taken shareholders on another wild ride this morning with the stock plunging around 25% in the opening minutes of trade before recovering to be down about 15% at midday.

It’s certainly not the first time the company has sent shareholders on a scary decent with the stock sinking from $3 to below $2 in late November 2015. Cardno’s share price has now lost over 70% in the past 12 months.

So What: The cause of today’s sell-off was the ASX release of a ‘Market Update and FY16 Guidance’ by the group.

The announcement stated that Cardno now expects financial year (FY) 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) of between $40 million and $45 million. This is a significant reduction on prior guidance which forecast an EBITDA range of $65 million to $70 million.

Equally concerning was news that Cardno may need to undertake a capital raising to ensure the company stays within its bank leverage covenant.

Now What: Mining stocks such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have enjoyed a rally recently. Both companies have experienced share price gains of around 20% in the past month.

Likewise, oil and gas stocks have benefited from the recent rise in the oil price. Santos Ltd’s (ASX: STO) share price has also risen around 20% in the past month.

The same gains haven’t flowed through to companies exposed to the mining services sector however. For example, shares in Orica Ltd (ASX: ORI) which is a major provider of explosives to the mining sector are flat over the past month.

Today’s announcement by Cardno that its business continues to face headwinds from its exposure to mining and oil and gas sectors “which continue to operate at materially lower levels than has been historically the case” should act as a reminder to investors. Dangers are still present across the commodity sector and caution should continue to be exercised despite the apparent “value” available.

What would YOU do if the market crashed tomorrow?

Mining, oil and gas shares are all on the nose with investors but what will happen next? With the ASX flirting with 5,000, some experts are predicting a market crash. Discover our Foolish experts' advice on what YOU should do in the event of a crisis -- simply click here for your FREE copy of our newly updated report, "What to Do When the Sharemarket Crashes". Click here, it's FREE!.

Motley Fool contributor Tim McArthur 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.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.