The ALS Ltd (ASX: ALQ) share price slumped even after management posted a close to 30% increase in profit and dividend for the year to end March 2019.
The ALQ share price fell 0.5% to $8.01 compared to the 0.2% decline in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
There's nothing sinister about its FY19 performance, which in fact came in higher than management's guidance and consensus forecast.
Where the gremlins are
What I suspect though is that investors are nervous about growth for the current financial year.
Brokers polled on Reuters are tipping a robust 14% earnings per share increase for FY20 and that may not gel with management's outlook commentary.
"In the absence of any prolonged trade uncertainty, the underlying global economic conditions in which ALS business streams operate continue to remain stable," said ALQ's managing director Raj Naran.
"The Company intends to follow its usual practice of providing formal financial guidance for the first half year at the AGM on 31 July 2019."
Deciphering the definition of "stable"
The word "stable" doesn't go with 14% profit growth expectations and investors are probably taking profit rather than wait for the AGM in two months to see if management is aiming to under-promise and over-deliver, or is trying to lower the too bullish market expectation.
The other issue is valuation as ALQ is priced as a growth stock. Assuming "stable" means flat to low growth, the stock is trading on a FY20 price-earnings multiple of around 21 times. That's expensive for a stock with only stable growth outlook.
Good FY19 results but do we care?
Putting this issue aside, ALQ's FY19 results look good. Underlying net profit jumped 27.3% to $181 million compared to management's guidance of $170 million to $175 million.
This translates to an EPS of 37.1 cents per share, which is ahead of consensus forecast at 36.2 cents a share.
Management has also upped its final dividend by 27.8% to 11.5 cents a share as its Life Sciences division and Commodities division contributed strongly to earnings growth.
Pity the market invests in the future and not the past!
ALQ was also highly acquisitive as it invested $100 million in strategic acquisitions and growth projects in Asia, the Americas and Europe.
But this perhaps is another reason why investors are a little put-off. Shouldn't such a large investment yield an outlook that's better than "stable"?
It will be a nervous two month wait to get the answer.
