3 stocks smashed last week: Should you buy?

Has the market over-reacted to news from Flight Centre Travel Group Ltd (ASX:FLT), SEEK Limited (ASX:SEK) and Slater & Gordon Limited (ASX:SGH)?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

To say the market has been volatile over the past several weeks would be an understatement. It appears as though all momentum has been lost and the market is reacting irrationally to news on a daily basis.

Investors are seeing exaggerated share price movements when companies release market sensitive information and when the news is bad it seems there is no place to hide.

Over the last week, shareholders of Flight Centre Travel Group Ltd (ASX: FLT), SEEK Limited (ASX: SEK) and Slater & Gordon Limited (ASX: SGH) have seen the value of their shares plummet based on various market announcements. All three companies have been strong performers in the past, so is now a buying opportunity or a sign of more bad news to come?

Flight Centre

Australia’s largest travel company was once a market favourite but over last 12 months investors have lost some confidence with the company’s outlook. Flight Centre announced a profit downgrade early last week caused by slowing growth in the Australian leisure market and rising costs. Although its international business is performing strongly, the Australian market is still the largest contributor to Flight Centre’s earnings and investors punished the stock.

Unless consumer sentiment improves, the short-term outlook appears challenging but there is still a lot to like about the long term growth prospects for Flight Centre. Earnings are projected to be slightly lower this year but the company is expanding into new markets that should drive future growth especially in overseas markets. The company also has a cash balance of more than $500 million that it can use for potential acquisitions or capital management initiatives.

The 20% share price decline over the last week has seen Flight Centre trade on a price-to-earnings (P/E) ratio of less than 14 and delivering a fully franked dividend yeild of around 4.5%. I took the opportunity to buy a parcel of shares last week as I believe the market has over reacted to short-term bad news.

SEEK Limited

$650 million worth of market capitalisation was wiped off Australia’s leading jobs site company last week as problems in its Learning division resulted in a profit downgrade. SEEK is now forecasting second half earnings to be broadly the same as the first half and also is expecting below average growth in FY16 as a result of increased competition, reforms in the education sector and aggressive re-investment across the group.

With the shares trading at a premium to the broader market, investors obviously had much higher expectations and the shares were beaten down heavily. Although SEEK is the clear market leader with numerous competitive advantages and a strong history of growth, I still think investors may have better opportunities elsewhere. The shares are still trading at a P/E ratio of around 25 and any further disappointing news will see the shares come under further pressure.

Slater & Gordon Limited

The announcement that the UK’s financial watchdog would be investigating the activities of Quindell Plc, saw the share price of Slater & Gordon get punished. Australia’s largest listed legal firm recently purchased part of the Quindell business for $1.2 billion and the announcement of the investigation fuelled further scepticism about the acquisition.

Worryingly for shareholders, the share price had already fallen by more than 5% the day before the announcement was made and it appears short sellers may be exacerbating the situation with the number of short positions increasing dramatically over the past couple of weeks.

While it is too early to tell if there will be any material impact on Slater & Gordon’s future earnings from the investigation or whether the acquisition will be beneficial to shareholders, it appears the market has already priced in the downside risk.

The company is still forecasting strong earnings growth and the shares are currently trading on a P/E ratio of around 15. With the uncertainty of the acquisition in mind, I think the current share price is attractive for investors who are willing to take a long-term view and tolerate some volatility in the short term.

Looking for a rock solid stock for your portfolio?

Motley Fool contributor Christopher Georges owns shares in Flight Centre Travel Group Ltd and Slater & Gordon Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »