Why the Reliance Worldwide share price has fallen 26% since May

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price has fallen 26% since the beginning of May. Is it a buy?

a woman

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The Reliance Worldwide Corporation Ltd (ASX: RWC) share price has fallen 26% since the beginning of May. RWC shares currently trade at $3.54 per share, which is a staggering discount of almost 45% when compared to its 52-week high.

When considering recent announcements, it does feel like a decline in the Reliance Worldwide share price was necessary. That being said, at its current price, I think it's feasible that the market may have overreacted.

Why has the Reliance share price dropped so significantly?

The most recent drop off in share price for Reliance Worldwide comes after the company issued a revised guidance for its 2019 financial results. This announcement, which was released in May, suggested a new range for EBITDA that was $20 million lower than the previous range expected. It's not surprising that this news prompted a decline in the RWC share price.

Part of the explanation for the reduced earnings was lower than anticipated sales in the United States (US). This came about due to the lack of a 'modest freeze event'. This type of event is responsible for breaking pipes and is something that Reliance Worldwide, a seller of push-to-connect plumbing fittings, usually benefits from. Shareholders should hope that these unforeseen weather conditions do not become the normal. Reliance Worldwide also noted the downturn in new home construction in Australia and competition in Europe as additional reasons for the reduction in earnings.

In its announcement to the ASX, Reliance Worldwide suggested that the business will be impacted by rising tariffs on imports from China into the US. These increased costs will make the business worse off into the future and the company will need to do what it can to reduce this impact. This news also presented a valid reason for the share price to decline.

Foolish takeaway

I believe that, given the announcements made by Reliance Worldwide, it was inevitable that the share price would fall. However, the current RWC share price appears to reflect quite well the foreseeable challenges that Reliance Worldwide will face. This company has market-leading products and the opportunity to further penetrate a number of large overseas markets. These factors make me believe that Reliance Worldwide shares are well worth considering when making your next investment.

Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited. 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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