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Is the Eclipx Group share price in the buy zone yet?

The Eclipx Group Ltd (ASX: ECX) share price fell 56% in one day to $0.57 per share after a negative ASX update before rebounding to $1.24 per share at market close – but is it in the buy zone?

What happened to Eclipx to start the year?

In mid-March this year, Eclipx emerged from its trading halt with an update announcing a 42.4% decrease in net profit after tax and adjustments (NPATA), compared to the first five months of FY18.

The company also announced that its financial performance had “softened” since its 29 January 2019 update as its Grays Industrial and Insolvency segments continued to underperform, and that it was looking at divesting non-core assets.

Both Eclipx management and McMillan Shakespeare Limited (ASX: MMS) announced that a planned merger was “unlikely” as McMillan pointed to several key issues in Eclipx’s trading update, including the NPATA decline and ongoing underperformance.

Could the Eclipx share price be in the buy zone?

I’m not personally in the game of distressed investing, but so far Eclipx looks like it might be back in the buy zone.

If you had managed to buy in the dip immediately following the crash, you would have netted yourself a tidy 117% profit in just a few months, which is greater than the share price performance of Afterpay Touch Group Ltd (ASX: APT) or Appen Ltd (ASX: APX) over the last 6 months.

Eclipx management has made a few structural changes and look to be plotting a path back to profitability, after non-cash impairment of assets and a change of senior leadership (including the CFO) in the subsequent months.

Eclipx’s first-half earnings (released at the end of May) were indicative of the difficult 6 months the company has endured, but if market conditions hold and the company can stick to its strategy, I think the full-year accounts could show improved performance and a share price rebound for brave investors.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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