The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has dropped 0.9% in trading on Monday, the last trading day of the financial year.
Tax loss selling, weak volumes and lower consumer confidence together with a weak performance by the market this year could all be blamed for today's fall. The index is up just 2.6% in the five months to end of May, a far cry from the annual performance in recent times.
Sigma Pharmaceuticals Limited (ASX: SIP) seems to have been singled out by investors, with the shares dumped more than 5% to 73 cents. Competitor Australian Pharmaceutical Industries Ltd (ASX: API) has suffered no such fate – with shares virtually flat at the close. Health care product distributors Paragon Care Ltd (ASX: PGC) and LifeHealthcare Limited (ASX: LHC) were down 3.7% and 0.4% respectively. Perhaps investors are clearing the decks to make way for giant IPO Healthscope.
Sigma supplies prescription medicines and pharmaceutical products to pharmacies as well as owning pharmacies under the Amcal Max, Amcal and Guardian banners. But the company faces immense pressure on its margins from two sides. The federal government is constantly revising the $9 billion Pharmaceutical Benefits Scheme (PBS) and further cuts in 2015 are likely to slice a decent portion of sales from Sigma and API's top line.
Add in aggressive competition from the discount pharmacies and both Sigma and API face potential structural changes in their industry. Neither company appears to have a rock solid future ahead of them.
Currently trading on a prospective P/E ratio of over 15 and paying a fully franked dividend of 3.9%, Sigma looks overpriced, with better opportunities out there. Like our top dividend stock for 2014/15.
