Market updates have a lot of power to punish a company don?t they?
They?ve destroyed shareholder value in today?s three companies, sending them down 63%, 74% and 43% in the past 52 weeks.
The major question on everyone?s mind will be ? can they recover their losses in 2015?
And unfortunately for shareholders my opinions are ?I don?t know?, ?I doubt it?, and ?I doubt it?.
Let?s take a closer look at why:
Reject Shop Ltd (ASX: TRS) ? last traded at $6.35, down 63% for the year
The Reject Shop?s fall from grace has been well publicised, with a string of negative announcements…
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Market updates have a lot of power to punish a company don’t they?
They’ve destroyed shareholder value in today’s three companies, sending them down 63%, 74% and 43% in the past 52 weeks.
The major question on everyone’s mind will be – can they recover their losses in 2015?
And unfortunately for shareholders my opinions are ‘I don’t know’, ‘I doubt it’, and ‘I doubt it’.
Let’s take a closer look at why:
Reject Shop Ltd (ASX: TRS) – last traded at $6.35, down 63% for the year
The Reject Shop’s fall from grace has been well publicised, with a string of negative announcements this year sending the company to previous lows of $7.50.
The last three days have been a hotbed of selling activity with 6x as much volume as normal between 25 and 27 November. Reject Shop shares crashed another 17% during this three-day window.
The company is difficult to value right now as it’s unclear whether weak trading conditions are improving or worsening; and until management updates the market it will be difficult to know for sure. In the context of its previous prices however – I bought at $10 – Reject Shop looks quite cheap.
At times like these investors would do well to remember Warren Buffett, who said ‘in the short term the market is a voting machine, in the long term it is a weighing machine’.
Reject Shop is having some popularity problems right now, but real investors are focussed on what the stock will weigh in ten years, not tomorrow.
Vocation Ltd (ASX: VET) – last traded at $0.535, down 74% for the year
This Vocational Education and Training (VET) organisation is the latest riches to rags story to hit news feeds around Australia.
The company’s bottom line took a big hit with the withdrawal of $20 million in government funding, and recent days have seen chairman John Dawkins resign and the company hit with a lawsuit over failing to meet its continuous disclosure obligations.
I personally think that Vocation could be undervalued, especially since its forward P/E estimate is very modest after the recent falls. Shareholders will no doubt be thinking back to the ‘no material changes expected’ announcement earlier this year and regarding the forecast earnings with some scepticism.
As Fool Tom Richardson notes, the lawsuits and loss of a highly experienced chairman make any purchase right now extremely speculative since there are so many unknowns.
Monadelphous Group Limited (ASX: MND) – last traded at $9.33, down 47% for the year
Engineering company Monadelphous has seen its price punished after a full-year report saw revenue down 10.9% and NPAT fall by 6.3%, with underlying NPAT falling 11.3%.
Worse, management expects 1H 2015 sales revenue to be 15-20% lower than 1H 2014.
Even worse than that are the figures I wrote about yesterday, which could be the final nail in the coffin of the mining services industry.
Only three major projects worth $597 million were given the go-ahead to proceed with development in the six months to October 2014. This contrasts starkly with the five projects that were finished during that time.
New projects in the resource sector are commencing at a much slower rate than they are finishing.
While Monadelphous states that investment in the oil/LNG sectors remains strong, Australia’s three major projects Australia Pacific LNG, Gladstone LNG, and Gorgon LNG are finalising in the next twelve months, after which the total amount of LNG work available will drop like a stone.
Mining services companies will be competing for an ever shrinking pool of work and simply put it’s going to be survival of the fittest.
Monadelphous looks like one of the stronger contenders, but that doesn’t necessarily make it a good investment.
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Motley Fool contributor Sean O'Neill owns shares in Reject Shop Ltd.