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Is the share price crash in ALS Ltd (ASX: ALQ) a buying opportunity for growth investors?

The share price of ALS Ltd (ASX: ALQ) got smacked this morning even as management posted an underlying profit that was ahead of consensus expectations.

It isn’t easy to please investors in this market with the stock plummeting 7.5% to a three-month low of $6.99 in morning trade – making the lab services group the worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index by a country mile.

In contrast, the second and third worst performers, Altium Limited (ASX: ALU) and Reliance Worldwide Corporation Ltd (ASX: RWC), have “only” shed 2.5% plus each.

The big sell-off in ALS was triggered by its full year profit announcement, which showed a 21.1% increase in underlying net profit of $142.2 million as revenue improved 15% to $1.46 billion.

Both figures are slightly ahead of consensus expectations and you’d think the 26% uplift to its final dividend of 9 cents a share would have excited investors.

But its more about what ALS didn’t do than what it did that is driving sentiment today. Management may have produced a nice bump in sales and profits but the figures aren’t above company’s guidance, an outcome that many had been banking on.

Management really needed to have pulled a rabbit out of its earnings hat to keep investors onside given that the stock had rallied close to 20% since the start of calendar 2018 (before today’s sell-off) when the ASX 200 is down by 1%.

While the pick-up in economic activity is a big positive for the company which tests minerals and chemicals for a wide range of industries, investors were also expecting a more bullish outlook statement.

Instead, management was only willing to commit to “stable” in describing its FY19 operating environment.

Given the group’s leverage to accelerating economic activity around the world, it sounds like management is trying to downgrade expectations and shareholders won’t know for sure until ALS’ annual general meeting on 1 August as management only provides a formal guidance at that time.

This is going to hang over the stock and could prompt analysts to cut their earnings forecast for the group.

Currently, consensus is tipping a 25% increase in underlying earnings per share (EPS) for FY19 and the stock would look good value if ALS can deliver that growth as that would put the stock on a price-earnings (P/E) of under 20 times.

But until we get greater clarity on the current financial year, investors may be better off investing in mining/oil services companies like Worleyparsons Limited (ASX: WOR) and Emeco Holdings Limited (ASX: EHL).

There’s another group of stocks that are worth looking at as well as the experts at the Motley Fool are particularly bullish on their outlook.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. 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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