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Cleanaway (ASX:CWY) share price plummets 7% today. Time to buy?

man standing next to garbage bin with money falling into it representing falling cleanaway share price
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Cleanaway Waste Management Ltd (ASX: CWY) shares are plummeting today. At the time of writing, the Cleanaway share price is down 7.14% to $2.34 and is down nearly 10% since 3 September. So is this a chance to clean up with this waste manager today?

Why the Cleanaway share price is getting compacted today

The Cleanaway share price is today responding to a couple of developments coming out of the company. It’s been an impressive month or two for the waste company so far. Cleanaway shares responded very well to the company’s earnings report for the 2020 financial year that was released last month. August saw the Cleanaway share price rise more than 22% as a result and also saw the company enter September trading at the highest share prices seen since the glory days of 2007.

But today’s sharp plunge is a step back for the company and one worthy of a long, hard look in my view.

So, today Cleanaway announced two developments. Firstly, it announced the departure of the company’s chief financial officer (CFO), Brendan Gill. Mr Gill will be retiring effective 1 February 2021 and will be replaced by the (aptly named) Paul Binfield.

Secondly, the company released a response to ‘a media article’ which alleges workplace misconduct from its CEO, Vik Bansal. Cleanaway’s management told investors that “the company takes allegations of misconduct in the workplace very seriously” and has implemented “a range of measures” in response. These include “enhanced leadership mentoring, enhanced reporting and monitoring of the CEO’s conduct”.

Mr Bansal has said, “I accept the feedback and remain totally committed to creating a progressive culture at Cleanaway while executing on our strategy and delivering ongoing financial performance.”

Cleanaway chair Mark Chellow had this to say on the allegations:

Mr Bansal had some issues with overly-assertive behaviour in the workplace and has acknowledged that he needed to address them. The Board is disappointed in the circumstances but has taken appropriate action. We have noted the committed and sincere manner in which Mr Bansal has responded. The Board will not tolerate any further instances of unacceptable conduct.

Should investors bin the company’s shares in response?

Whilst these allegations of misconduct from Mr Bansal are concerning, I don’t think it warrants an investor exodus from the company just yet. I think the chair’s strongly worded statement draws a firm line in the sand and puts Mr Bansal on sufficient notice that change is needed. Mr Bansal has been the CEO of Cleanaway since 2015. Since his appointment, the Cleanaway share price is up more than 300%. 

Even so, this conduct is not something investors want to see. Further muddying the waters is the fact that, according to reporting in the Australian Financial Review (AFR), Mr Bansal has recently offloaded around 4 million of his 5.5 million Cleanaway shares, reducing his stake in the company by 73%. This sale occurred late last month.

As such, I wouldn’t want to initiate a position in this company just yet. Even after today’s slump, the Cleanaway share price isn’t exactly cheap in my opinion. While the company remains more than 10% off of its new 52-week high, it is still trading at a lofty price-to-earnings (P/E) ratio of 42.7. I don’t think today’s developments warrant existing shareholders to sell-out. But I wouldn’t be initiating a new position right now all the same.

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Motley Fool contributor Sebastian Bowen 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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