The robotic brick laying technology company crumbled today as the FBR Ltd (ASX: FBR) share price dived 15% on high volume to retest its nine-month low of 14 cents.
The sharp sell-off was triggered by news that US construction machinery giant Caterpillar Inc. and FBR were terminating the memorandum of understanding (MOU) between the two companies.
The bad news coincides with a broad market sell-off which sent the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index tumbling 0.8% as investors lost their appetite for risk.
Other building related stocks like the Reliance Worldwide Corporation Ltd (ASX: RWC) share price, Boral Limited (ASX: BLD) share price and James Hardie Industries plc (ASX: JHX) share price were also in the doldrums.
Hitting a Wall
Coming back to FBR, if the termination of the MOU wasn’t enough to get shareholders to hit a wall, Caterpillar is also looking to sell its 2.1% stake in the ASX small cap.
That will create an overhang and ensure the stock will stay depressed for a while yet. Potential buyers of the FBR stock will be sitting on their hands until the excess supply of shares starts to clear.
The MOU between Caterpillar and FBR was to test the ASX small cap’s technology, which can build a three-bedroom, two-bathroom housing structure in three days.
I doubt the ending of the MOU was “mutual” like FBR is claiming. It was almost certainly Caterpillar’s call although FBR stressed that the decision had nothing to do with how its technology was performing during the tests.
Caterpillar is undergoing some problems of its own with an unexpected slowdown in demand for its equipment and so the reason is believable, even though that will bring little comfort to shareholders.
Both companies said they remain open to exploring opportunities but that’s like your partner breaking up with you and asking to remain friends.
Is the FBR share price cheap?
You have to give points to FBR for effort though as the company said it was launching its Wall-as-a-Service (WaaS) offering where customers can get FBR to build walls without the need to purchase its robotic machine.
That’s a cringeworthy name and a poor play on software-as-a-service (SaaS). The guys should have stuck to bricklaying and left the creative work to professionals.
However, the offering makes sense as it removes the upfront capital burden to developers who are undergoing a liquidity crunch from falling property prices and tighter bank lending restrictions.
Perhaps FBR should team up with Afterpay Touch Group Ltd (ASX: APT) to help builders with their cashflow.
There could be value in FBR’s shares after the big fall but there’s really no rush to buy it – not when there are so many ASX stock bargains around.
Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO, Boral Limited, and Reliance Worldwide Limited. 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.