Why Xenith IP Group Ltd shares have been crushed today

Amongst the worst performers on the local market today has been the Xenith IP Group Ltd (ASX: XIP) share price.

At one stage the intellectual property services company’s shares were down as much as 40% to $1.00.

At the time of writing its shares have recovered slightly, but are still down a massive 30% to $1.17. This brings its year-to-date decline to in excess of 56%.

Why have its shares been crushed today?

This morning Xenith IP provided the market with a trading update which revealed that its first-quarter performance has fallen short of expectations.

According to management, EBITDA and revenue are below its expectations due to disruptions with its recent acquisitions, issues rebalancing current capacity against current and anticipated workflows, and foreign exchange headwinds.

As a result, EBITDA is expected to be between $18 million and $22 million in FY 2018.

While this will be an improvement on the underlying EBITDA of $15.5 million it delivered in FY 2017, the market had been expecting far more considering its recent acquisition spree.

Should you buy the dip?

While its shares are arguably quite cheap now, I would suggest investors stay clear of the company until there are signs of improvement operationally.

After all, there is always a risk that these issues could persist longer than expected and weigh heavily on its performance this year and next.

In the meantime, I would suggest investors consider industry peer IPH Ltd (ASX: IPH) instead.

Alternatively, these high-flying growth shares could be even better options if you ask me.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of IPH Ltd. 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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