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Why Thorn Group Ltd shares have been crushed today

In morning trade the Thorn Group Ltd (ASX: TGA) share price has once again been one of the worst performers on the Australian share market.

At the time of writing the financial services company’s shares are down 18% to 58.5 cents.

This means that Thorn Group’s shares have now lost 62% of their value since this time last year.

Why are they being crushed again today?

This morning the company released an update which advised that trading conditions in its Consumer Leasing division have deteriorated. As a result of this deterioration, the company’s future financial results will be materially impacted.

According to the release, management now expects the company’s full-year cash profit after tax to be at the lower end of its guidance range of $17 million to $20 million.

This is largely down to the weakening performance of its Radio Rentals business and expectations that trading conditions are unlikely to improve in the medium term. Management has also blamed the adverse publicity from Thorn’s settlement with ASIC and its ongoing class action for the soft result.

In order to combat this decline, the company is developing a refreshed and extended retail offering for Radio Rentals. This will be supported through further promotional activities and a strategic review to improve business performance.

One bright spot, however, is that the company’s Business Finance segment continues to show strong results. But considering the Consumer Leasing segment accounted for 82% of revenue as of its half-year results, the strong performance of the Business Finance segment isn’t going to move the needle too much.

Why the heavy decline?

Considering the company has merely downgraded its guidance to the low end of its guidance range, some readers may be wondering why its shares are down 18%.

There appears to be concerns that this underperformance could lead to the company breaching its debt covenants once again. This could test the patience of its lenders and lead to action being taken.

Should you invest?

Although Thorn Group looks cheap on paper I would suggest investors stay well clear of it. Like Myer Holdings Ltd (ASX: MYR), I think Radio Rentals is outdated and not relevant to today’s consumer.

Instead of Thorn, I would suggest investors look at its modern day equivalents Afterpay Touch Group Ltd (ASX: APT) or Zip Co Ltd (ASX: Z1P).

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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 AFTERPAY T FPO. 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 Scott Phillips.

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