The recent market volatility and lack of investor confidence could not have come at a worse time for those companies that have reported weaker-than-expected financial results. Nervous investors are showing no mercy to companies that miss expectations and their share prices are taking a severe beating as a result.
Some of those shares that are now trading at new 52-week lows and facing a long uphill battle to regain investor confidence include:
- 3P Learning Ltd (ASX: 3PL) – Shares of the online education provider crashed heavily on Friday after the company released worse-than-expected first half results. Although revenues increased by 22%, underlying net profit fell by 10% as a result of significantly higher operating expenses. Add to this negative operating cash flows, no dividend payout and the recent and sudden departure of its CEO, and its not hard to understand why the share price ended the day 25% lower. Looking past the first half results however, investors should expect a much stronger second half performance from 3P Learning as this is generally when around 65% of its earnings are generated. If the company can keep costs under control, investors should see a much improved profit result and a possible recovery in the share price.
- Amaysim Australia Ltd (ASX: AYS) – Shares of the newly listed mobile telco company had enjoyed a strong rise until about two weeks ago. Although the company only released its half year results on Friday, the sharp fall in the share price in the two weeks leading up to the result may have been an early warning sign to investors. The shares dropped a further 37% on Friday after Amaysim disappointed investors when it revealed net customer growth had slowed. The company added just over 85,000 new subscribers by the end of 2015, down from growth of 183,000 users a year earlier. Although underlying earnings growth was strong, some analysts are now questioning whether or not the company will be able to meet its full year prospectus targets. The shares now trade well below their IPO price of $1.80, but investors may want to wait for the dust to settle before jumping in.
- Reckon Limited (ASX: RKN) – The shares of the accounting software company have fallen by around 20% since releasing its full year results and are now trading at levels not seen since 2009. Reckon reported revenue growth of just 4.3% and reported net profit after tax of $15.1 million, down by more than 14% from the previous year. Despite plans to expand into the UK and recent product launches, the competitive environment Reckon finds itself in means delivering earnings growth will be difficult. The company is competing directly against XERO FPO NZ (ASX: XRO) and Myob Group Ltd (ASX: MYO), both of which have much larger scale and a much greater foothold in the fast-growing cloud accounting sector. As a result, I wouldn’t buy Reckon even at the current share price.
- RCR Tomlinson Limited (ASX: RCR) – RCR Tomlinson’s half-year report highlights the challenges infrastructure and resource service providers are currently facing. The difficult operating environment has seen the company’s already slim margins fall by 43% to just 2.8%. The impact on the bottom line was clear with earnings per share falling by 54% to just 6.4 cents. Although the company remains in a financially strong position, earnings are not expected to materially improve until at least FY17. As a result, it may still be too early to call a bottom for the share price and investors may want to wait for signs of new growth before becoming shareholders.
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Returns As of 6th October 2020
Motley Fool contributor Christopher Georges owns shares of 3P Learning. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.