Tassal shares are down 20% in less than 3 months. Are they a buy today?

The Tassal Group Limited (ASX: TGR) share price has fallen roughly 20% since the beginning of August. Are Tassal shares a buy today?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Tassal Group Limited (ASX: TGR) share price has fallen roughly 20% since the beginning of August and now trades at around $4.10 per share. This share price fall coincides with Tassal raising capital through issuing shares, with the aim being to use the additional capital to fund an "accelerated prawn growth strategy".

Tassal has issued shares on two recent occasions at prices above the current share price. In August, Tassal raised $108 million of capital through a share placement at $4.40 per share. In September, $17.4 million of capital was raised via a share purchase plan for existing shareholders. This was achieved at $4.16 per share.

Is Tassal's strategy good for shareholders?

The information released by Tassal suggests that its prawn business could increase the return that Tassal is able generate for its shareholders. This is, in part, because prawn farming requires less ongoing capital expenditure and has quicker growth cycles than salmon farming. Based on this, accelerating the growth of its prawn business makes sense for Tassal and its shareholders.

Expanding more heavily into prawns also offers benefits to Tassal through diversification. Salmon farming, like all farming, has risks and by growing an alternative income stream Tassal will be less exposed to negative changes in this aspect of its business. This added diversification might make some risk-averse investors prefer to own Tassal shares as opposed to shares in Tassal's competitor Huon Aquaculture Group Ltd (ASX: HUO).

Foolish takeaway

I like Tassal's strategy to accelerate growth in its prawn business and believe that it will likely create value for shareholders. I also feel that strong demand for salmon and prawns will ensure that Tassal has a bright future. However, after only delivering a return on equity (ROE) of 10% each of the last two years, the current Tassal share price appears to me to be above intrinsic value. This is even after taking into account a potential boost to ROE in the coming years from prawn farming. Therefore, I wouldn't recommend investing in TGR shares at this stage.

At a lower price I might be more inclined to invest in Tassal shares. A lower share price would offer protection against falling salmon and prawn prices or the failure of Tassal to realise an improvement in its return.

Motley Fool contributor Mitchell Perry 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.

More on Share Fallers

a business man in a suit holds his hand over his eyes as he bows his head in a defeated post suggesting regret and remorse.
Share Fallers

Why Brightstar, EVT, Monash IVF, and Pro Medicus shares are dropping today

These shares aren't spreading the Christmas cheer on Wednesday.

Read more »

Miner holding a silver nugget
Materials Shares

After a 22% fall, is now the time to buy Silver Mines shares?

Silver Mines shares dropped sharply after a Bowdens update. Here’s what changed and whether the pullback creates an opportunity.

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Aeris Resources, Capricorn Metals, Paradigm, and Silver Mines shares are sinking today

It hasn't been a good session for owners of these shares.

Read more »

Bored man sitting at his desk with his laptop.
Share Fallers

Why Domino's, HMC Capital, Regis Healthcare, and WiseTech shares are falling today

These shares are starting the week in the red. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Boss Energy, Paragon Care, Treasury Wine, and Woodside shares are falling today

These shares are having a tough session on Thursday.

Read more »

an oil worker holds his hands in the air in celebration in silhouette against a seitting sun with oil drilling equipment in the background.
Share Fallers

Why ASX oil stocks Woodside, Santos and Ampol are sliding today

Oil prices have slipped below US$60 a barrel.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why DroneShield, Graincorp, Treasury Wine, and Woodside shares are sinking today

These shares are having a tough time on hump day. But why?

Read more »

Man with a hand on his head looks at a red stock market chart showing a falling share price.
Share Fallers

Why AIC Mines, ASX, Karoon Energy, and Life360 shares are falling today

These shares are falling more than most on Tuesday. But why?

Read more »