It was another day to forget for shareholders of the struggling Monash IVF Group Ltd (ASX: MVF) on Tuesday.
The fertility treatment company’s shares plunged almost 10% lower to a multi-year low of 98.5 cents before ending the day 9% lower at 99 cents.
Why did Monash IVF’s shares get hammered?
This morning the company announced that it had accepted the resignation of David Morris as chief executive officer and managing director with immediate effect.
According to the release, Mr Morris resigned for personal reasons and was unable to relocate to the company’s head office in Melbourne.
This means that Mr Morris has departed from Monash IVF less than a year after joining from Cochlear Limited (ASX: COH) to replace James Thiedeman on November 13 of last year. Mr Thiedeman also resigned from the top job.
The Monash IVF board has appointed Michael Knaap as the interim chief executive officer effective immediately. Mr Knaap has been the company’s chief financial officer and company secretary since August 2015.
Should you be concerned?
It does not look good when a company changes its CEO so frequently. While this resignation has been put down to personal reasons, I’m still not convinced that things are good behind the scenes at Monash IVF.
If I were a shareholder I would be worried. Especially given how poorly the company has performed over the last couple of years.
This has been reflected in its share price which has fallen significantly over the period. Two years ago its shares were trading at $2.49, now they’re 60% lower and show little sign of improving in the near term.
In August management warned that first half FY 2019 profits would be down 15% on the prior corresponding period because of the negative impact that the loss of Dr Lynn Burmeister will have on its business.
Miraculously, though, management stated that it expects full year profit to be higher than in FY 2018. I’m very doubtful about this forecast given the loss of Dr Burmeister and the tough trading conditions it faces.
Should you invest?
While its shares look cheap at 11x earnings, I’m concerned that they could ultimately prove to be a value trap.
As a result, I would suggest investors looking for exposure to the industry avoid Monash IVF and look at Virtus Health Ltd (ASX: VRT) instead. However, due to current trading conditions, it may be prudent to wait for a trading update before investing.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cochlear Ltd., Monash IVF Group Ltd, and Virtus Health Limited. 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.