Why has the Electro Optic (ASX:EOS) share price sunk 8% in the last week?

Earnings downgrades tend to see ASX investors hit the sell button.

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a soldier in combat gear wears electric optic equipment over his helmet.

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The Electro Optic Systems Hldgs Ltd (ASX: EOS) share price is rebounding today in what’s sure to come as welcome news to shareholders.

The Electro Optic share price is up 2.94% in early afternoon trading, but it still leaves its shares down 8.4% over the past 5 trading days.

Below, we take a look at what’s been pressuring the company which produces electro-optic technologies for the defence and aerospace markets.

Earnings, earnings, earnings…

The biggest driver that looks to have pulled down the Electro Optic share over the last week was a significant downgrade in its earnings guidance.

The company’s previous guidance for 2021 was for revenue in the range of $230-240 million. The revised guidance dropped this to a range of $215-220 million.

Underlying earnings before interest and tax (EBIT) were revised downwards from $18-21 million to $4-8 million.

The Electro Optic share price likely also suffered from the company’s upward revision of its SpaceLink costs, from $17 million up to $19 million. Its underling EBIT after SpaceLink is included (excluding any potential foreign exchange moves) fell from a positive of $1-4 million to a loss of $11-15 million.

The earnings downgrades overshadowed other positive news released by the company during the week.

As my Foolish colleague James Mickleboro reported:

EOS has received $65 million of cash receipts relating to a major export contract. This has boosted its total cash at bank to in excess of $100 million, including a $35 million working capital facility.

This cash receipt relates to a $440 million contract to supply significant quantities of its remote weapons systems to the UAE…

Electro Optic share price snapshot

The Electro Optic share price has struggled in 2021, down 47%. That compares to a year-to-date gain of 11% posted by the All Ordinaries Index (ASX: XAO).

Over the past month, Electro Optic shares are down 8.43%.

Should you invest $1,000 in Electro Optic right now?

Before you consider Electro Optic, you'll want to hear this.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems 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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