Why the Surfstitch share price could be headed for another crash

Surfwear retailer Surfstitch Group Ltd (ASX: SRD) goes into trading halt pending earnings update

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

The Surfstitch Group Ltd (ASX: SRF) share price could be headed for another big fall, after the retailer went into a trading halt pending an update to its earnings forecast.

The news is hardly likely to be good.

Surfstitch announced today that the trading halt was necessary to allow the company to provide the market with a further update on its anticipated pro-forma EBITDA for the year ending 30 June 2016 (FY16).

That's never a good sign and often flags a downgrade to a company's forecast. It's not the first time Surfstitch has updated its forecasts either.

On May 3, Surfstitch's share price plunged as much as 56% after shocking the market with a downgrade to FY16 forecast earnings. The company announced that it expected earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $2 and $3 million. Surfstitch had forecast EBITDA of between $15 and $18 million in 2016, after reporting earnings of $7.7 million for FY15.

Of particular concern for shareholders who have elected to hang on is the 15% fall in the share price over the past week, including 11% in the last two business days and heavier than normal volumes over the past three days. That perhaps suggests that someone may have known a downgrade is coming – although it could equally be pure coincidence.

Date Volume Closing price Change
6-Jun-16 1,031,300 0.41 -4.7%
3-Jun-16 2,001,300 0.43 -6.5%
2-Jun-16 2,473,300 0.46 2.2%
1-Jun-16 610,600 0.45 -6.2%
31-May-16 219,800 0.48

Source: Yahoo Finance

Foolish takeaway

Should the online surf, skate and ski wear retailer come out with another earnings downgrade as I expect, the share price is likely to take another massive dive. The odds of a shareholder class action also appear to be rising as we suggested last month.

 

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga 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 Retail Shares

A man eases back onto his sofa, happy with the relaxed vibe from his furniture.
Retail Shares

Why I just sold half my shares in this ASX 300 stock even though I still love it!

I’m still a big fan of this business.

Read more »

Two fashionable asx investors dancing among confetti.
Retail Shares

2 'very high-quality' ASX retail shares with significant inside ownership

A fund manager has named two appealing stocks to own.

Read more »

A man sits on a bench atop a mountain with a laptop, making investments with a green ESG mind.
Earnings Results

ASX All Ords stock KMD tumbles as interim dividend cancelled

Investors are hitting the sell button on ASX All Ords stock KMD today.

Read more »

Close-up Of Empty Shopping Cart Near Person's Hand Using Calculator Over White Desk
Retail Shares

Better buy: Coles or Woolworths stock?

Which stock should go in the shopping basket?

Read more »

Person handing out $100 notes, symbolising ex-dividend date.
Retail Shares

Why did Super Retail shares drop after going ex-dividend?

This is the story behind the decline.

Read more »

Happy couple doing online shopping.
Opinions

Is it too late to buy after the Kogan share price rocketed 90% in a year?

Is this online retailer still an investment opportunity?

Read more »

Two people comparing and analysing material.
Retail Shares

Better buy in March 2024: Wesfarmers stock vs JB Hi-Fi stock

Which of these two retail heavyweights would be a better buy?

Read more »

A man eases back onto his sofa, happy with the relaxed vibe from his furniture.
Share Gainers

If you'd put $30,000 in this ASX retail stock 11 months ago, you'd have $116,000 now

When battered stocks make a comeback, it happens very quickly. Here's a prime example.

Read more »