Is the Cleanspace (ASX:CSX) share price a buy after falling 50% yesterday?

Is the CleanSpace Holdings Ltd (ASX: CSX) share price in the value zone after losing half its value yesterday?

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The Cleanspace Holdings Ltd (ASX: CSX) share price halved in value yesterday from $4.430 to $1.985 after its sales update significantly missed expectations. At the time of writing, the Cleanspace share price has fallen further to $1.91, down 4.03%. 

Why the share price got chopped in half

The market was quick to judge and also punish the Cleanspace share price. This comes after the company announced that it had experienced lower sales over the current quarter. In addition, Cleanspace is expecting Q3 FY21 sales to be approximately $7 million. 

While the initial outbreak of COVID-19 may have created tailwinds for the respiratory protection equipment (RPE) manufacturer, the opposite is now unfolding as the global vaccine rollout gains momentum. Additionally, customer and government spending constraints, and stockpiling of low-tech disposable masks have seen sales slow in the second half.

CleanSpace made its ASX debut on 23 October with a listing price of $4.41 per share. Its shares closed at $7.420 on its first day or a return of 68% for those that managed to participate in the initial public offering (IPO). 

Yesterday’s selloff would have sent IPO investors from break-even to losing half their investment at open. 

Is the CleanSpace share price on sale?

Bell Potter released an update for Cleanspace shares after the disappointing sales update. The broker retained a hold recommendation with a 12-month target price of $2.28, down from $6.75. 

The magnitude of sales weakness was significantly greater than Bell Potter and consensus expectations. The broker was forecasting $15 million in sales for Q3 FY21, compared to the announced $7 million. 

The broker’s commentary notes a high level of uncertainty in the short term as hospitals have diverted resources to vaccine rollout programs and away from new equipment purchases. As a result, Bell Potter anticipates “ongoing and longer-term sales weakness in the Hospital segment”. 

While the near-term may be bleak for the CleanSpace business, Bell Potter still views the company as a “quality business, with a differentiated product, and are positive on management’s expansion of the sales and marketing teams to drive improved sales”. In the long run, the broker expects a solid recovery and growth compared to current levels. 

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has recommended CleanSpace Holdings 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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