Shares of mining services heavyweight, Monadelphous Group Limited (ASX: MND) soared 8% this morning, putting the company up a whopping 27% in the past five trading days alone.
Yesterday the ASX issued the company a 'please explain' notice following the blistering rise. However the company said it wasn't aware of any explanation for the recent trading in its securities.
Monadelphous' share price rise appears to be at odds with fellow mining services firms, Worleyparsons Limited (ASX: WOR) and RCR Tomlinson Limited (ASX: RCR) whose shares have traded 1% higher and 5% lower, respectively, over the same period.
The last piece of company news to be announced to the ASX was that it would be dropped from the S&P/ASX100 (Index: ^AXTO) (ASX: XTO) following significant sell-offs in its share price throughout 2013 and 2014.
Should you buy Monadelphous shares?
Spending in Australia's resources and infrastructure sectors is expected to continue plunging over coming years, with a recent ANZ bank report forecasting a 60% cut in spending between 2014 and 2017. This is bad news for all mining services companies, including Monadelphous. Indeed the consensus among analysts is for the company's profits to drop considerable over the next three years.
Based on trailing 2014 results, Monadelphous shares trade on a price-earnings ratio (PER) of 7.5 and dividend yield of 10%. However based on Morningstar's analyst consensus forecasts for 2017, it trades on a PER of 13 and yield of 7%. Personally, I believe those forecasts are very optimistic.
The slowdown in infrastructure spending throughout China will continue to burden investment in local resources projects for many years, so I'd avoid buying any mining services company for the foreseeable future. No matter how cheap their shares appear.
