Why InvoCare Limited shares are down 7% this week

One of the worst performers on the Australian share market this week has been the InvoCare Limited (ASX: IVC) share price.

The funeral homes, cemeteries, and crematoria operator’s shares are down 2% at the time of writing, extending their two-day decline to almost 7%.

Why are its shares sinking lower?

With no news out of the company, it appears as though this decline could be related to news from one of its international peers.

Over in the United Kingdom on Friday, a profit warning sent the shares of leading funeral services operator Dignity down by close to 50%.

According to Reuters, Dignity warned that results for FY 2018 would be substantially below market expectations after it was forced to cut some of its prices.

The prices of its simple funerals have been cut by as much as 25% after British families became “increasingly price-conscious in an over-supplied industry”.

Should InvoCare shareholders be concerned?

While I think shareholders ought to be concerned, I wouldn’t necessarily be rushing to the exits.

While both the British and Australian economies are suffering from subdued wage growth, they are not mirror images of each other. After all, post-Brexit Britain is also contending with higher inflation, whereas Australian inflation is somewhat lacking.

But having said that, I wouldn’t necessarily be a buyer of InvoCare’s shares just yet either. At approximately 25x estimated forward earnings they do trade at a premium to the market-average.

This could put them under significant pressure if the company does have to follow in the footsteps of Dignity and slash prices.

At this point I think the prudent thing to do is to hold off an investment in InvoCare and industry peer Propel Funeral Partners Ltd (ASX: PFP) until the release of their earnings results next month.

In the meantime I think these top blue chip shares would be great alternatives to InvoCare.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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