The Eclipx Group Ltd (ASX: ECX) share price crashed another 12.31% lower yesterday as the group struggles to stop the selling after it scrapped of a planned merger with McMillan Shakespeare Ltd (ASX: MMS) last week.
What did Eclipx announce that was so bad?
The vehicle fleet leasing company reported net profit after tax and amortisation (NPATA) had fallen 42.4% compared to the first 5 months of FY18 and that it could not provide full-year guidance for FY19 at the moment. The company's dividend is also in danger with management yet to decide on the best course of action.
The company also announced that its financial performance had "softened" since its 29 January 2019 update as Grays Industrial and Insolvency segments continue to underperform, and it's looking at divesting non-core assets.
What happened to the planned merger?
Both Eclipx management and McMillan Shakespeare announced that the merger was "unlikely" as McMillan pointed to several key issues in Eclipx's trading update including the NPATA decline and ongoing underperformance.
While Eclipx had requested an extension to the existing scheme terms, McMillan's rejection of this ultimately sent the share price tumbling with the current $0.57 share price down 70% on the pre-update $1.89 per share valuation.
Could the Eclipx share price be cheap enough to buy?
Anytime a company's share price declines by 70% in a week there's a case that it could be undervalued.
While Eclipx's update did identify a myriad of issues facing the leasing and fleet management company, the potential divestments and expansion of a cost-cutting programme could make the case that now is the time to buy Eclipx.
Personally, I'm not looking to add that sort of risk to my portfolio, but I think the current 3x P/E multiple and the fact it's trading at an all-time low would indicate that value is there for those who are a little more risk-seeking and interested in effectively distressed equity investments.
Provided Eclipx can turn around the ship, we might just look back at $0.57 per share and see it as the one that got away.
While big question marks remain regarding the Eclipx share price and the company's long-term future, this buy-rated stock could be set to take a new-age $22 billion by storm in 2019.
