The second-worst performer on the S&P/ASX 200 index this year behind Speedcast International Ltd (ASX: SDA) has been the Costa Group Holdings Ltd (ASX: CGC) share price.
Since the start of the year the horticulture company's shares have lost a disappointing 51% of their value.
Why has the Costa share price more than halved in value?
Costa's shares have come under significant selling pressure this year due to the sudden deterioration in its performance.
It all started at the beginning of the year when the company revealed that it had fallen well short of its guidance for the six months to December 30.
At that point management reiterated its earnings growth guidance of 30% for calendar year 2019. But some five months later another deterioration in trading conditions led to the company downgrading this guidance to the range of 0.7% to 16.6%.
And then in August the company released its results for the six months to June 30. Due to adverse conditions during the Moroccan blueberry season, low mushroom demand, raspberry quality, and fruit fly issues, the company reported a statutory net profit after tax decline of 15% to $41.1 million.
It also warned that "trading and forecasting remains challenging with potential further downside risk" to its previously downgraded guidance. Unsurprisingly, this spooked investors and led to many hitting the sell button once again.
Should you buy the dip?
Whilst its shares are looking a lot more attractive after this sell off and its long-term outlook looks positive, I continue to believe it would be best to wait for a sustained improvement in its performance before considering an investment.
After all, its shares may be down by over 50%, but they could still go lower if management downgrades its guidance further in the coming months.
Instead of Costa, I would buy food shares such as Domino's Pizza Enterprises Ltd (ASX: DMP) and Freedom Foods Group Ltd (ASX: FNP).
