Stock Alert! Metcash Limited plunges 10% – Is it time to buy?

With the share price at a decade low, this could be a great contrarian opportunity.

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After the close of trade on Thursday evening, grocery wholesaler and owner of the IGA-banner Metcash Limited (ASX: MTS) released a profit guidance update for the full year that signalled a 13% to 15% decline in earnings per share.

The news hasn’t been well received by investors with the stock opening sharply lower today, sinking as much as 12% in early trade before steadying around the $2.85 mark, for a loss of 9.5%.

Following last night’s update has been the release today of Metcash’s Transformation Plan and Strategy Briefing which is a detailed account of how the company, led by Mr Ian Morrice, plans to turn things around. The turnaround strategy is set to cost up to $700 million and will be partially funded through a reduction in dividends.

Foolish takeaway

Its certainly been a tough ride for investors in Metcash with the stock down 30% in the past year as the company has struggled to maintain market share in the face of sustained price deflation and market expansion by supermarket giants Woolworths Limited (ASX: WOW), and Coles owner Wesfarmers Ltd (ASX: WES).

Despite these pressures it’s possible all the bad news and more is now factored into the company’s share price – which is now trading at levels last seen 10 years ago – making Metcash a potentially enticing contrarian opportunity for deep value investors.

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

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