Is laboratory services provider ALS Ltd preparing for a fall?

Following a well-publicised peak in mining investment in 2012-2013, most mining services companies suffered major declines in value as investors jumped ship en masse.

The rapid exodus was not without reason, with too many companies competing for too few projects causing margins to decline and revenues to evaporate.

One company still suffering from the decline in mining investment is ancillary services provider ALS Ltd (ASX: ALQ), which provides a wide range of services to both mining and non-mining sectors.

While the company is exposed to businesses as diverse as food and pharmaceutical quality assurance, consumer products testing, and non-food consumables distribution, a solid portion of its earnings come from the resources sector; primarily the analysis of testing, measurement and inspection of resource samples.

It’s that exposure that caused a decline in ALS’ earnings per share to the tune of 35% in 2014 (ALS’ financial year ends in March) and if the profit guidance for FY15 is anything to go buy, investors could expect a further decline of 25% this year.

The chairwoman’s address back in July indicated that ALS expects a decline in NPAT of around 26% for the first half of the year which concludes at the end of September.

While business conditions have improved, ALS is yet to see increases in the number of lab samples it receives and if first-half conditions are any indicator, the firm is likely to see a significant reduction on full-year profit in 2015 as well.

Generally speaking shares drop when significant profit decreases are announced, so it is my opinion that buying into ALS this financial year may not be the wisest of investment decisions.

However the company’s entrenched position and increasing exposure to growing gas and petroleum industries is a big plus if debt can be kept under control.

This is not to say that ALS is a complete write-off, however I do believe that a purchase right now should be considered with extreme caution or deferred for twelve months.

Investors itching to make a purchase should instead check out the free report on The Motley Fool’s Top Stock for 2014-2015.

A company I already own shares in, it is a substantially better investment than ALS and continues to experience growth without any major hurdles at this point.

If you’re interested, simply click on the link below and enter your email address – it takes less than 30 seconds – and we’ll send it to you, completely FREE!

The full scoop on our #1 ASX pick - yours FREE

It's not too late! The Motley Fool has issued a firm "BUY" rating on this small but ultra promising ASX company... and you can get the name and code FREE right now. Click here for your free copy of "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned - except for The Motley Fool's Top Stock for 2014-2015 of course!

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.