ASX industrial stock Johns Lyng Group Ltd (ASX: JLG) has seen its share price drop by nearly 60% in the past year after a 38% drop in the past month alone.
Shares in the insurance and building restoration business are priced at $2.54 apiece before the open on Wednesday, a far cry from their former highs of more than $9.20 in April 2022.
With the stock now trading at the same level it was in 2020, we have to ask: Can this ASX industrials stock turn things around? Let's dive in and see.
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Why is this ASX industrial stock lower?
Industries tied to the broad insurance sector caught a bid in early 2023 as inflation spiked, and a series of natural disasters caused many policies to skyrocket. This was short-lived.
Weather conditions across Australia improved, leading to fewer insurance claims in 2024, particularly in disaster-related work for Johns Lyng.
As the ASX industrial stock reported in its H1 results, this caused a 68% drop in its catastrophe insurance revenue.
Project delays in NSW and the US further hindered its performance during the half. As a result, management tightened the guidance belt, projecting 5% lower revenues to $1.16 billion.
Shares are subsequently down sharply over the past year, and this is important. Why? Because a loss and a gain are not equal.
To break even from a 5% loss, you only need a 5% gain. But from 10%? You now need 11.1% just to break even.
A 60% loss means you need a 150% gain just to break even – not be in the green.
| Percentage Loss | % gain needed to break even |
| 5% | 5% |
| 10% | 11.1% |
| 20% | 25% |
| 30% | 43% |
| 60% | 150% |
More recently, Johns Lyng was kicked out of the ASX 200 Index earlier this month.
As reported by my colleague James, the sharp declines over the past year mean the ASX industrial stock's market cap doesn't fit the index's criteria.
This has implications. Constituents of the index enjoy a 'momentum' effect as large Superannuation funds purchase ASX shares as part of their quarterly mandates.
These funds are typically restricted to ASX 200 shares, meaning Johns Lyng will no longer enjoy this passive-buying effect as the Super funds roll in member contributions.
What about the positives?
While it's been a tough period, Johns Lyng has taken several strategic actions to position itself for recovery.
One notable move was the acquisition of its 87.5% stake in Keystone Group. This is a Queensland-based provider of insurance building and restoration services.
Despite the narrowed guidance, the consensus of analyst estimates still rates the ASX industrial share a buy, according to CommSec.
Morgans is one on the bullish side. As we reported last year, the broker likes the Keystone acquisition, upgrading its pre-tax earnings forecasts by 7% as a result.
According to Tradingview, brokers see an average price target of $3.12 apiece. This signals a 23% upside potential from the ASX industrial stock's price before the open on Wednesday.
Foolish takeaway
This ASX industrial stock has suffered in the past 12 months, but it's not all doom and gloom. Brokers still rate it highly, and management hasn't sat on its laurels.
Only time will tell what happens from here. Regardless, Johns Lyng shares have a mountain to climb before recovering this 60% loss in the past year.
