The Costa Group Holdings Ltd (ASX: CGC) share price has plunged 45% to just $3.91 per share over the past six months, making to make it one of the worst performing shares in the S&P/ASX 200 (INDEXASX: XJO) index.
So, has the stock reached its low or is there room to fall further?
What's behind the Costa Group share price tumble?
Costa Group has had a difficult first half of the year as it has battled ongoing profitability and curbing of its future growth prospects, which has sent its share price tumbling.
The first big move of the year came in early January when the group downgraded its future growth forecasts and the market reacted with a significant sell-off of Costa Group shares, which saw the share price plunge more than 37% in just a couple of days.
Costa Group's half-year results weren't all bad, with the group reporting revenue of $478 million and EBITDA before SGARA, material items, and amortisation (EBITDA-S) of $35.3 million. This was a 2.4% and 42% decline, respectively, on the prior corresponding period.
NPAT before SGARA and material items and amortisation (NPAT-S) came in at $8.5 million, down from $28.6 million a year earlier.
Where to now for Costa Group shares?
Investors who have held their shares are no doubt hoping that the worst is behind Costa Group, with the belief that management can right the ship and put Costa back on the growth trajectory it was on in 2018.
However, I think with global equities heating up and geopolitical tensions rising, a correction of some sort for Aussie equities is not out of the question in the second half of the year.
While there are plenty of doom-and-gloom market commentators, many investors forget that historically the best performance in equities comes in the 12–18 months before a market crash or recession, meaning that further growth for the likes of Costa is not out of the question.
The stock is trading at 23x earnings which seems like reasonable value for what was previously a top-performing growth stock on the ASX, particularly given its current 3.9% dividend yield on offer.
I'm personally not too bullish on the consumer discretionary sector at this point in the cycle and think the likes of BHP Group Ltd (ASX: BHP) could be part of a solid rotation strategy into value stocks at this stage.
For a stock of a very different kind, take a look at this little-known ASX company tipped to profit off the coming marijuana boom.
