Why the Service Stream (ASX:SSM) share price is down 20% today

The Service Stream (ASX: SSM) share price has been smashed today, down almost 20%. Here’s why this company is now at a 3-year low.

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A businessman holds his glasses in concern, indicating uncertainly in the ASX share price

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The Service Stream Limited (ASX: SSM) share price is being smashed today. Service Stream shares are down 19.94% at the time of writing to $1.37 a share. That’s essentially a 3-year low for the company since it last saw these levels back in February 2018.

Service Stream shares are now down more than 42% since December 2020 and down almost 54% since the company’s last all-time high, which we saw back in August 2019.

So what’s causing this calamitous drop in the Service Stream share price today?

Service Stream share price gets fried

Well, it appears to be a reaction to Service Stream’s earnings report for the first half of the 2021 financial year (1H21) that the company released after market close yesterday. As my Fool colleague James Mickleboro warned at the time, investors were probably expecting a share price fall today after the report dropped last night. But perhaps they weren’t expecting a return to 3-year lows for the company.

We did cover the company’s results yesterday, but let’s go through some of the highlights (or perhaps lowlights in this case).

So Service Stream reported a 17.7% drop in revenues to $409.9 million. That resulted in a 40.5% collapse in net profits after tax (NPAT) to $16.2 million.

To make matters worse for investors, the company also announced that its interim dividend would be slashed by 37.5% to 2.5 cents per share (albeit still with full franking). On the current share price, that would equate to an annualised dividend yield of 3.62%, but only 2.9% on yesterday’s closing price.

Service Stream’s management didn’t exactly calm investors’ fears when they warned that the second half of the 2021 financial year could be just as bad for the company. Management blamed the coronavirus pandemic, along with the associated travel bans, for much of these woes. However, the company’s management was more bullish on the long-term outlook, saying:

The business has a strong pipeline of organic growth opportunities linked to our core markets, and will continue to adopt a measured approach to assessing potential external growth opportunities, ensuring they will enhance the group’s long-term performance.

Evidently, investors are begging to differ.

About the Service Stream share price

The company has a price-to-earnings (P/E) ratio of 11.3 and a market capitalisation of $561.37 million on the current Service Stream share price. Its 52-week high is $2.47 and its 52-week low is now $1.36, just one cent below the current share price.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Service Stream Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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