Shares in Costa Group Holdings Ltd (ASX: CGC) traced lower today without any market-sensitive news in correlation.
The group released its full-year results for the 12 months ending 31 December 2021 yesterday. This saw the Costa share price spike by 26 cents to a four-month high of $3.26. That was an impressive 8.6% gain.
Alas, today Costa gave all of those gains back. The share price finished the day at $2.98 — a loss of exactly 8.6% on a trading volume more than double Costa's four-week average.
Image source: Getty Images
Why did ASX investors sell down Costa today?
After a fairly robust set of results yesterday, questions remain as to why ASX investors sold the stock down on Wednesday.
Revenue came in 5% higher at $1.22 billion and EBITDA increased by more than 10% over the course of the year. This carried through to a 5 cents per share dividend fully franked for shareholders at tax time.
However, net profit after tax (NPAT) was weak — slipping 31% compared to 2020 — as cost increases and supply chain headwinds plagued the company's earnings.
As such, reported earnings per share (EPS) was 22% lower and missed the consensus estimate of analysts by a considerable amount.
It also missed the consensus on revenue by about 30 basis points. Analysts had been banking on Costa recognising $1.225 billion at the top in 2021.
Plus, even though the company grew its earnings throughout the year, it appears that market pundits were expecting far more. As such, analysts have downgraded their earnings estimates across the board on average for FY22 and FY23. Their downgrades extend from revenue all the way down to EPS and free cash flow at the bottom lines.
What does a future earnings downgrade mean for Costa?
These downgrades by analysts are important because as Peter Lynch alludes to in his book, One Up On Wall Street, the market prices stocks on a combination of past earnings and future earnings expectations. Hence, downward revisions of future earnings could impact the market's view of Costa moving forward.
The downward revisions certainly aren't good news for the Costa share price, which has been tracking below the S&P/ASX 200 Index (ASX: XJO) since May last year.
The 'crocodile jaws' pattern, as it is colloquially known, shows no signs of narrowing — as seen on the chart below.
Costa share price snapshot
In the past 12 months, the Costa share price has fallen by 32% and is down 4% this year to date.
Things are looking a bit more positive in the past month though with the shares trading in the green, up 1.36% during this time.
