Being in the S&P/ASX 200 (INDEXASX: XJO) index is a big deal – the biggest 200 public companies in the country, more analyst coverage, and more liquidity for your shares.
But while the domestic share market has enjoyed its best 6-month start to the year since 1992, the likes of Syrah Resources Ltd (ASX: SYR) and Seven West Media Ltd (ASX: SWM) have been two prominent companies to drop out of the index in the last week amid share price declines of 50% or more over the last 12 months.
Seven West Media Ltd
The Seven West share price is currently trading at $0.45 per share – well short of its $1.11 52-week high achieved as recently as August 2018.
The company’s equity was hammered lower in the second half of last year amid a broader market downturn while a downgrade in FY19 underlying group earnings before interest and tax (EBIT) and a broader structural change in the media industry certainly didn’t help.
Disappointingly for long-term investors, the stock’s current $0.45 valuation is well below even its 1999 IPO closing price of $4.49 per share and 74% lower than its share price 5 years ago.
With Seven West dropping out of the S&P/ASX 200 on 24 June, and no sign of a turnaround in the media industry in the medium-term, I would be wary of buying, even at such a low price.
Syrah Resources Ltd
While the news hasn’t been good for Seven West investors in the last year, it’s been even worse for those who bought Syrah Resources (including one right here!).
The Syrah share price is currently sitting at $0.84 per share, down a whopping 69% over the last 12 months.
Syrah has long been a volatile stock, with the graphite miner experiencing the ups and downs coming from its Balama operations based out of Mozambique.
While delays and cost overruns plagued the company’s share price in the early days, the recent 12-month collapse has been more attributable to the floor dropping out below global lithium and graphite prices.
While there’s a chance that mainstream uptake of electric cars (looking at you Tesla) and greater government incentive schemes, the reality is that the short-term outlook remains bleak.
While I’m still holding onto my Syrah shares, I certainly wouldn’t be looking to increase my stake despite its current price before seeing some material improvement in operations and the global macro environment.
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Motley Fool contributor Kenneth 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.