Has the mining services sector been set up for another fall?

It's tricky to get a gauge on the slowdown and accurately value stocks in the sector.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If investors cast their minds back to March this year they will no doubt remember the dramatic fall in the share prices of many mining service firms that ensued over the next few months to July.

Stocks such as Ausdrill (ASX: ASL), Bradken (ASX: BKN), Decmil (ASX: DCG) and Imdex (ASX: IMD) fell 73%, 35%, 27% and 49% respectively over the period from the start of April to the start of July. This fallout from the acknowledgement that the the mining boom had peaked in terms of capital expenditure led to a swift and painful correction on the outlook for many firms which service the resources sector.

While the market is regularly prone to overreaction on the way down and the way up during cycles, the speedy bounce by some mining service stocks would now appear to be questionable. Since July 1, the above four have rallied 60%, 35.5%, 29% and 13% respectively.

With Ausdrill entering a trading halt earlier in the week, advising that "it is reviewing its current operating performance and ongoing challenging market conditions, which are weaker than expected", it begs the question whether some investors have priced in expectations that are too rosy for some mining service stocks.

Although Bradken appears to be doing a sound job of navigating through a tough economic climate, its recently released earnings guidance suggests the company will be working hard just to bring in a flat earnings result this financial year. Meanwhile, Imdex's first-quarter trading update reported that revenue was down 28% and earnings before interest, tax and amortisation were down 84% on the prior corresponding quarter.

Foolish takeaway

Picking winners in the stock market is never easy, but picking them from within a depressed sector is arguably even harder. For many investors, it can be better to focus on companies that are experiencing a tailwind as opposed to a headwind.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »