Smashed: G8 Education Ltd shares plunge 15%

Shares in G8 Education Ltd (ASX: GEM) plunged 15% to $3.15 this morning after initially falling as much as 23% following the release of the group’s half-yearly results to the market.

(source: Google Finance)

(source: Google Finance)

Almost ten times the average number of shares traded hands, according to Google Finance, with the market apparently spooked by higher wage costs (the group’s biggest expense) and limited earnings growth. Cash flows also fell although management stated that wage costs as a percentage of revenue fell in the second quarter and should fall again (lower is better) in the second half.

It was interesting to note that minnow Think Childcare Ltd (ASX: TNK) was up 9% in trade on above-average volumes today. Although Think Childcare also suffered a significant rise in its wage expense last week, its revenues (up 19%) grew faster than occupancy and wage expenses (up 15% and 16% respectively), unlike G8’s.

Despite today’s fall, G8 shares are down just 1% in the past 12 months.

source: Google Finance

(source: Google Finance)

Although they appear inexpensive in Price to Earnings (P/E) terms relative to the rest of the ASX and boast a massive dividend, G8 shares are prone to volatility and now also to bearish sentiment. Investors got a taste of the risks and potential downside (should operating performance deteriorate further) with G8 today, and it’s hard to see shares heading substantially higher in the near term.

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Motley Fool contributor Sean O'Neill owns shares of G8 Education 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.

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