Shares in taxi payment services provider Cabcharge Australia Limited (ASX: CAB) were among the worst performing on the ASX in Monday's trade. The stock fell by more than 3% to give up all of last week's gains.

Until today, Cabcharge shares had enjoyed a positive March, rallying off a 13-year low. But the fact remains that the stock has lost nearly half of its value in the last 18 months.

Why did this happen to Cabcharge Australia shares?

On Friday, S&P Dow Jones Indices announced the result of its quarterly index review.

Every three months, S&P Dow Jones assesses the stocks that make up each index it runs — the S&P/ASX 200 (INDEXASX: XJO) and the All Ordinaries (INDEXASX: XAO) index, for example.

Any given three-month period generally sees several stocks grow significantly, while just as many can fall on hard times and sink. These large rises and falls bring stocks into contention for addition or removal to indices.

Index membership makes a difference to a company's share price prospects. Big fund managers are often mandated to buy every single stock in a given index, and that buying pressure can help those stocks on the buy list to rise.

By the same token, removal from an index can mean those big fund managers have less reason to buy a certain stock — or the fundies' mandate may even require them to sell it.

That's why investors watch the quarterly index rebalance closely. As is often the case with bad news, investors tend to sell first and ask questions later.

On Friday, the market saw S&P Dow Jones remove Cabcharge Australia from the benchmark S&P/ASX 200 index. Cabcharge joined similarly ill-fated stocks like Slater & Gordon Limited (ASX: SGH) and Ten Network Holdings Limited (ASX: TEN) in making way for rising stars like Bellamy's Australia Ltd (ASX: BAL) and St Barbara Ltd (ASX: SBM).

Falls in share price, volume and general market relevance have knocked Cabcharge Australia out of the S&P/ASX 200 index and dented their investor appeal today.

What's next for Cabcharge Australia Limited?

It's hard to be bullish on Cabcharge Australia's prospects from here. Its result for the six months ending 31 December 2015 saw statutory net profit after tax fall by nearly 22%. Surcharge reductions and stiffer competition from other taxi payment providers are making life harder for Cabcharge.

That's to say nothing of the well-documented threat from ridesharing apps like Uber, which are seeing more and more passengers turn their back on traditional taxis entirely.

Although favourable regulation could help to stem Cabcharge's bleeding, there is real potential for peak market share and peak profitability to have come and gone for the group.

On that basis, Cabcharge's share price shrinkage looks justified — and it's hard to recommend a purchase.

The post Why the Cabcharge Australia Limited share price is sinking today appeared first on The Motley Fool Australia.

More reading

• Up 2,000% in a year, why this ASX healthcare stock is in focus today
• Why Monash IVF, NAB, Viva Energy, and Worley shares are falling today
• Why this $9 billion ASX stock is edging closer to record highs today
• Up 130% in a year, are Lynas Rare Earths shares still a good buy today?
• Why Navigator Global, St Barbara, Vulcan Energy, and Zip shares are racing higher today

Shares in Aussie energy giant Woodside Petroleum Limited (ASX: WPL) are on the move.

The oil and gas explorer and producer's value rose by more than 5% in Wednesday's early trade on the ASX, continuing Tuesday's 1.8% gain.

This follows a savage two-week selloff for Woodside shares, a period which saw the market erase all of the company's year-to-date gains. Taking a longer view, Woodside shares are bouncing around an 11-year low.

Why did this happen to Woodside Petroleum shares?

The biggest driver of Woodside shares right now is the oil price. Investor sentiment toward the commodity has shifted in the last few weeks.

The last few months have seen investors gloomy about the glut of oil set to hit a chronically oversupplied market. But this week, traders are focusing on the posibility of an output agreement among big producers.

Freezing oil production would likely shore up low oil prices and help energy producers like Woodside, Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) to boost profitability.

Woodside investors are sensing a willingness for management to act in shareholders' best interests amid the pressures of a low oil price environment.

Managing director Peter Coleman has hinted at delaying the multi-billion dollar investment decision on its offshore Western Australia Browse project until oil prices recover.

Yesterday, Woodside released a presentation which summarised the full-year result the group had announced two weeks previously. It reiterated Woodside's commitment to maintaining a strong balance sheet and low cost of operations to drive superior shareholder returns.

What's next for Woodside Petroleum Limited?

It's all well and good for Woodside to talk down its costs and commitments around capital expenditure, but to impress shareholders, it has to deliver on hard targets.

To that end, investors will closely watch next week's analyst day at Chevron. Woodside is delivering a large LNG joint venture project with Chevron. A capex increase for that project could stop Woodside's share price rally in its tracks.

In a much broader sense, the direction of the oil price and the Aussie dollar will determine Woodside's fortunes.

Foolish takeaway

Life isn't easy for big energy producers right now, but it's distinctly possible that the winds of economic change could start to blow in their favour. Until that happens, Woodside still has more levers internally that it can pull to enhance shareholder value.

If you believe oil can't stay cheap forever, you should look closely at this $22 billion Aussie giant.

The post Why the Woodside Petroleum Limited share price is soaring today appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Friday
• 3 reasons why Santos shares are a screaming buy right now
• 5 things to watch on the ASX 200 on Thursday
• Why Boss Energy, Telix, Woodside, and Yancoal shares are falling today

Shares in consumer finance provider Cash Converters International Ltd (ASX: CCV) rose by more than 3% on the ASX this morning.

The Cash Converters share price flatlined more than six months ago and currently trades at around half what it was worth this time last year.

Why did this happen to Cash Converters shares?

This morning, Cash Converters reported strong performance across all of its Australian businesses for the six months ending 31 December 2015. Revenue grew by nearly 6% to just shy of $200 million, which helped drive net profit of $15.9 million in the period. That's a great turnaround from the $5.3 million loss Cash Converters made in the same period one year earlier.

More importantly, Cash Converters confirmed a change of strategy which will see the group step back from its ill-fated punt on the UK market. Cash Converters will divest its UK personal loan book and plans to sell its corporate stores to franchisees within its network. The group will also close its Australian motor vehicle finance arm, Carboodle.

Cash Converters will focus on the business for which most people know it best — its Australian online and physical retail and financial services division. Cash Converters benefits from strong brand recognition and customer satisfaction levels among Aussies, and it enjoys a leading domestic market share.

After a tough year for payday lenders, which saw a regulatory inquiry and a pullback from funding by Westpac Banking Corp (ASX: WBC), it makes sense for Cash Converters to focus on its most promising businesses. As Cash Converters called time on its push into the UK, investors cheered the strategic move — bidding up the company's share price this morning.

What's next for Cash Converters International Ltd?

Managing director Peter Cumins spoke positively about Cash Converters' prospects today. He said:

'We will now focus on markets where we already have a strong position, good growth prospects and relatively predicable operating and regulatory environments…recent government data shows the short-term lending market in Australia is growing and the range of consumers accessing these products is broadening. This is driving demand for online and more sophisticated lending products. Cash Converters is well positioned to meet this demand and respond to industry changes.'

Mr Cumins has put his money where his mouth is, declaring a two cent per share interim dividend. With the stock having sold off significantly over the past three years, it's possible that today's price action has put something of a floor under the Cash Converters share price.

Foolish takeaway

Payday lenders can be a dicey business at the best of times. It's not the kind of investment most people would like to advertise at dinner parties.

Recently, Cash Converters and its peers Thorn Group Ltd (ASX: TGA) and Money3 Corporation Limited (ASX: MNY) have been particularly on the nose, as the government has targeted the sector. But these companies provide services that a lot of people depend on, and its demand dynamics look relatively assured.

The conclusion of Cash Converters' strategic review could mark a wise time to consider an investment.

The post Why the Cash Converters International Ltd share price is soaring today appeared first on The Motley Fool Australia.

More reading

• Up 2,000% in a year, why this ASX healthcare stock is in focus today
• Why Monash IVF, NAB, Viva Energy, and Worley shares are falling today
• Why this $9 billion ASX stock is edging closer to record highs today
• Up 130% in a year, are Lynas Rare Earths shares still a good buy today?
• Why Navigator Global, St Barbara, Vulcan Energy, and Zip shares are racing higher today

Shares in homewares retailer Harvey Norman Holdings Limited (ASX: HVN) enjoyed a strong start to Friday's trade on the ASX. The Harvey Norman share price opened up by more than 3% before the shares eased off a little through the session.

Including dividends, Harvey Norman shares have returned investors more than 10% over the last 12 months. It's even more impressive that the shares have rallied by more than 23% in a little over two months since mid-December.

Why did this happen to Harvey Norman shares?

This morning, Harvey Norman revealed a healthy result for the six months ending 31 December 2015. The group grew net profit after tax (NPAT) by nearly 31% to $185.5 million.

A strong performance by the franchise stores helped to drive profits, leading to a $10 million decline in the 'tactical support' Harvey Norman extends to its franchisees in the form of rent, marketing and fee relief.

Global sales rose by 8% to $3.33 billion — helped to some extent by currency appreciation of the Euro and UK pound, but also by market conditions that have continued to benefit Harvey Norman.

Chairman Gerry Harvey struck a bullish tone on the outlook for retail businesses linked to the housing market. That includes not just Harvey Norman, but also stocks like Myer Holdings Ltd (ASX: MYR), JB Hi-Fi Limited (ASX: JBH), Fantastic Holdings Limited (ASX: FAN) and Nick Scali Limited (ASX: NCK).

Mr Harvey said: 'Australian macroeconomic conditions have had an upward trend for three years and have been favourable for consumption in the homemaker and lifestyle categories. We anticipate robust construction and housing activity to continue this year, in response to pent-up demand and, particularly in New South Wales, Victoria and the ACT, dwelling starts [that] are materially above long term averages.'

It's clear that Harvey Norman has enjoyed a strong tailwind from the Aussie housing construction boom. The group's competitive position is also likely to benefit from the demise of former competitor Dick Smith Holdings Ltd (ASX: DSH), now moving toward liquidation. This week my colleague John Hopkins discussed the impact of Dick Smith's failure here.

What's next for Harvey Norman Holdings Limited?

Once owners finish building a house, typically the next things they buy are furniture and electronics.

Harvey Norman looks well placed to continue to capitalise on changes in homemaker consumer demand. As a leading indicator of that demand in Australia, investors will closely watch monthly and quarterly trends in housing completions, which are currently running at record levels.

Although it remains a concern that Harvey Norman has diversified into ventures like mining camp accommodation and dairy farming, the group's core business looks healthy and the prospects look reasonable.

Foolish takeaway

Remember when the mainstream press ran front-page headlines in October 2014 that branded Harvey Norman the world's most overpriced stock?

Since then, Harvey Norman shares have gone up by more than 27% — paying out healthy dividends along the way.

It goes to show that in the long run, a stock with sound economic fundamentals will always triumph over the forces of short-term market sentiment.

The post Why the Harvey Norman Holdings Limited share price is soaring today appeared first on The Motley Fool Australia.

More reading

• 3 ASX shares tipped to grow 75% or more in the next 12 month!
• 3 discounted ASX 200 shares to buy before they rebound 
• How to invest $300 a month in Australian shares to target a $50,000 annual second income
• Consumer discretionary shares to target for a long-term rebound
• These 3 ASX 200 stocks hit a 52-week low: Buy, sell or hold?

Shares in SEEK Limited (ASX: SEK) burst out of the gates on Thursday, up more than 10% shortly after the ASX open.

This price action marks a welcome return to form for Seek. After this morning's spike, investors in the job search site will still have lost around 14% of their capital over the last 12 months if they bought shares this time last year.

Why did this happen to SEEK Limited shares?

Today Seek revealed a strong result for the six months ending 31 December 2015. Underlying net profit after tax (NPAT) grew by 9% to $102.4 million.

Seek's Australia and New Zealand business performed well in what CEO Andrew Bassat described as 'subdued macro conditions'. With more than 7.1 million user profiles on its platform — representing growth of 41% from the prior comparable period — Seek is capturing plenty of consumer data and the group enjoys a market leadership position.

Seek's real growth engine, however, is its international business. This division operates in high growth markets across 14 countries. The segment delivered a record result with earnings before interest, tax, depreciation and amortisation (EBITDA) growing by 36% to more than $100 million.

Seek's reported profit was even stronger thanks to some significant items in the period. Through an initial public offering, the group sold its 50% stake in IDP Education Pty Ltd (ASX: IEL) and netted a profit of more than $181 million — a cash return of nine times its original investment.

Seek capped its healthy half-year by announcing an interim dividend of 21 cents per share — up 11% from one year earlier.

There really was something for everyone in today's result, which explains its positive impact on the Seek share price.

What's next for SEEK Limited?

Seek has reaffirmed the profit guidance it provided in August 2015, which confirms that the group's growth story remains intact. It enjoys enviable positions across multiple markets and has many options to glean and monetise insights from its massive user info database. This should help Seek continue to go from strength to strength.

However, investors in Seek should remain mindful of the disruptive threat from well-resourced competitors. You should also be aware that as Seek's international businesses become more important, foreign exchange movements can impact more dramatically on the group's results.

Foolish takeaway

When it comes to investing in online businesses, it can be tempting to focus on the 'new kids on the block'. But Seek's result today shows that in volatile markets, established players with global ambitions can offer much more reliable profits.

The post Why the SEEK Limited share price is soaring today appeared first on The Motley Fool Australia.

More reading

• 6 ASX 200 shares downgraded by the experts this week
• Down 50%, but could these top ASX tech stocks double from here?
• Could these ASX stocks double by the end of 2026?
• What are the 3 ASX technology shares Citi rates as a buy at the moment?

Shares in Qube Holdings Ltd (ASX: QUB) have been mixed recently as takeover speculation surrounds the business. At $2.22, Qube Holdings shares have regained the ground they had lost since the firm launched its bid for rail and ports operator Asciano Ltd (ASX: AIO).

Most of that gain came from Tuesday's stunning 10% share price surge, which my colleague Mike King analysed here.

Why did this happen to Qube Holdings shares?

This week Qube revealed a result it described as 'solid…despite challenging conditions' for the six months ending 31 December 2015.

Group revenue fell by 5% to $689 million as the market toughened for Qube's Ports & Bulk segment. Qube expects that the downturn in the resources and oil and gas sectors will continue to drag down this division's profitability.

Qube's pursuit of Asciano has come at a cost. $2.8 million for due diligence, and another $2.8 million in interest expenses. Underlying net profit after tax (NPAT) — which strips out those costs — declined by 1.7% to $52.2 million.

It seems investors have already priced general industry weakness into the Qube share price. However, some may hold new concerns for Qube's outlook, where management expects near term demand to 'remain subdued'.

One theme of February's earnings season has been investors savaging companies which announce dividends which fall short of market expectations. On that front, Qube announced an unchanged interim dividend of 2.7 cents per share — which was never going to set a fire under the Qube share price.

What's next for Qube Holdings Ltd?

Investors in Qube Holdings generally aren't there for the dividend. They're backing the ability of Qube's chairman, Chris Corrigan, and managing director, Maurice James, to engineer a deal which brings them Asciano's Patrick container terminals business at a reasonable price.

Qube has spent the last four months as chief antagonist to Asciano's would-be suitor Brookfield Infrastructure Partners, but Qube and Brookfield are now looking to join forces in a new consortium.

If Qube and its backers can gain approval to proceed from the Australian Competition & Consumer Commission (ACCC), the firm could strengthen its market position in shipping, logistics and stevedoring. But at the stroke of a pen, the ACCC could render all of Qube's efforts null and void.

Foolish takeaway

When you buy any stock, to some extent you'll be backing that company's management — but that bet is even more black and white when considering an investment in Qube Holdings. If you believe in Chris Corrigan, Maurice James and their team, then you'll believe in Qube Holdings' long-term attractiveness as a strategic infrastructure investment.

The post Are Qube Holdings Ltd shares worth buying? appeared first on The Motley Fool Australia.

More reading

• Why this $9 billion ASX stock is edging closer to record highs today
• Qube updates FY26 outlook: expects short-term headwinds but maintains earnings growth target
• 5 things to watch on the ASX 200 on Thursday
• Fund manager names 3 top ASX 200 dividend stocks to buy today

Overall, Australia's national carrier has enjoyed a cracking return to form — unthinkable compared to the dire straits it faced less than two years ago.

Why did this happen to Qantas Airways shares?

This morning, Qantas announced a record performance for the six months ending 31 December 2015. Qantas revealed a 150% rise in underlying profit before tax to $921 million. That's toward the high end of the guidance management provided in mid-December.

Every Qantas segment contributed strongly to the result, with Jetstar Group and Qantas International both posting growth in underlying earnings before interest and tax (EBIT) of more than 100%.

This leaves Qantas well diversified across five attractive businesses.

Group revenue rose 5% in the period to $8.5 billion. To drive profit so much more strongly than revenue growth, Qantas exploited lower fuel prices, controlled its costs across the group and took a smarter approach to aircraft utilisation.

Qantas also reaped the benefit of the lower Australian dollar, which is driving an inbound tourism surge. As CEO Alan Joyce put it: 'Today's record result reflects a stronger, leaner, more agile Qantas…the strength of our performance also means we can continue to reward our shareholders for their confidence in our business.'

The reward Mr Joyce referred to is a new on-market share buy-back scheme worth up to $500 million. Investors should see this as an attractive way to boost returns, absent the payment of a regular dividend, which would be harder given Qantas' low franking credit balance.

Today's result reflects a healthy and confident Qantas Airways, so it's a little surprising to see the Qantas share price selling off in heavy trade this morning.

What's next for Qantas Airways Limited?

With oil prices continuing to decline, it's likely that market analysts will now have to upwardly revise their estimates of Qantas' future profit potential.

Even after their strong recent run, Qantas Airways shares are still trading at a price-earnings (PE) multiple of only around seven times. Historically, Qantas Airways shares have traded at between 8 and 12 times the group's earnings.

On that basis, and in light of today's robust result, Qantas shares are looking cheap today. If jet fuel stays cheap, Qantas Airways Limited could be set to continue its brilliant share price rise.

Foolish takeaway

It's hard to make money investing in airline stocks. Businesses like Qantas Airways, Virgin Australia Holdings Ltd (ASX: VAH) and Regional Express Holdings Ltd (ASX: REX) have a lot of moving parts, many of which are beyond management's control.

When things go wrong, these stocks and those of companies like Sydney Airport Holdings Ltd (ASX: SYD) can suffer serious share price drops. Despite Qantas Airways' household name status, it is not a low-risk stock.

But if you're comfortable with the view that airlines can continue to benefit from cheap oil, cost discipline and rational competition, you could ride solid gains through an investment in Qantas Airways.

The post Qantas Airways Limited shares could be set to soar  appeared first on The Motley Fool Australia.

More reading

• 2 ASX shares highly recommended to buy: Experts
• Top brokers name 3 ASX shares to buy next week
• The pros and cons of buying Qantas shares this month
• Brokers name 3 ASX shares to buy right now
• Why a $700 million move into Qantas shares is turning heads today

The share price of electricity distributor Spark Infrastructure Group (ASX: SKI) fell on Monday, lagging the positive move on the broader market.

At around $1.88 after this morning's 1% fall, Spark shares are worth 13% less today than they were this time last year. You should note, however, that Spark mitigated this by paying its shareholders a dividend yield of more than 5% last year.

Spark owns 49% interests in the South Australia and Victoria power networks and controls around 12% of listed peer DUET Group (ASX: DUE).

The group has also just bought 15.01% of TransGrid, the electricity transmission business newly privatised by the NSW government.

Why did this happen to Spark Infrastructure Group shares?

This morning, Spark Infrastructure Group reported a mixed bag of results for the year ending 31 December 2015. Spark's underlying profit before loan note interest and tax fell by 3.4% to $263 million.

Spark blamed the slide on a lower share of profits from its SA Power Networks business. The South Australian electricity distributor's revenues and earnings are highly regulated. Investors may give Spark a pass on this point, as an October 2015 regulatory change should let Spark raise tariffs and rake in significantly more revenue from South Australia.

Perhaps investors were looking for healthier guidance on dividends. Spark reconfirmed its previous distribution guidance of at least 12.5 cents per share (cps) in 2016, at least 13 cps in 2017 and at least 13.5 cps in 2018, subject to business conditions.

Most companies' shares would probably rally if their management provided such clear guidance for dividend growth. But in the highly regulated world of utilities investment, dividends are an even more important part of total returns than they are for Aussie private investors.

Some traders may have expected Spark's prospects for cash flow growth to translate into faster dividend hikes. With no positive surprise on dividends today, those investors would have sold their Spark shares.

What's next for Spark Infrastructure Group?

Spark sees potential for a 'significant increase' in operating cash flow depending on how regulatory rulings fall. Investors might look forward to that river of cash making its way into their pockets, as the firm intends to review its dividend policy in the next four months.

Spark is diversifying its sources of cash flow and investors could enjoy stronger profits as the firm boosts both operational efficiency and capacity utilisation. With the stock down around 8% since the start of February, this could prove an interesting entry point for an investment in Spark Infrastructure Group.

The post Why the Spark Infrastructure Group share price is sagging  appeared first on The Motley Fool Australia.

More reading

• Up 2,000% in a year, why this ASX healthcare stock is in focus today
• Why Monash IVF, NAB, Viva Energy, and Worley shares are falling today
• Why this $9 billion ASX stock is edging closer to record highs today
• Up 130% in a year, are Lynas Rare Earths shares still a good buy today?
• Why Navigator Global, St Barbara, Vulcan Energy, and Zip shares are racing higher today

Fibre cement building products maker James Hardie Industries plc (ASX: JHX) enjoyed a soaring share price in today's trade on the ASX.

The James Hardie share price rose briefly by more than 10% shortly after this morning's open. The rise boosted James Hardie's value to levels unseen for more than three months. Could 2016 see James Hardie shares retest the all-time high they hit in August last year?

Why did this happen to James Hardie Industries shares?

This morning, James Hardie announced that in the nine months ending 31 December 2015, it earned US$185 million of adjusted net operating profit. That's 13% more than the firm earned in the period one year earlier.

More pleasingly, profit for the last three months of the period rose 16% compared to the quarter one year earlier. James Hardie CEO Louis Gries pinned the profit acceleration on 'higher volumes and lower production costs within our North America and Europe fibre cements business.'

Mr Gries struck a cautiously optimistic tone in his outlook. Although he highlighted that US housing activity has been improving, he cautioned that 'market conditions remain somewhat uncertain and some input costs remain volatile.'

Currency movements typically have a stronger effect on James Hardie's share price than on other ASX-listed firms. That's because most of its profit comes from its North America and Europe businesses.

Investors looked through the currency fluctuations today and gave their approval to James Hardie's healthy profit margins and to management's new and improved guidance for its annual result. For the year ending 31 March 2016, James Hardie expects adjusted net operating profit of between US$240 million and US$250 million.

That's a tighter target than the US$230 million to US$250 million management indicated as recently as November. This increasing confidence in its operations has inspired investors to bid up the James Hardie stock price today.

What's next for James Hardie Industries plc?

James Hardie investors will be hoping that input prices and the exchange rate between the Aussie and US dollar remain more stable in 2016 than they did last year. If that happens, James Hardie should reap the full benefit of a US housing construction market that continues to improve.

However, investors will pay close attention to James Hardie's profit margins. If it emerges that James Hardie is sacrificing its pricing power in the pursuit of volume growth and market share, investors may re-rate the stock downwards.

Foolish takeaway

ASX investors have several choices of large stocks exposed to commercial and housing construction — among them, Adelaide Brighton Ltd. (ASX: ABC), Boral Limited (ASX: BLD) and CSR Limited (ASX: CSR).

Their sensitive exposure to the economic cycle can make these stocks quite risky. If you're considering an investment in James Hardie Industries, you need to add currency risk to that economic risk.

That makes James Hardie an appropriate stock for investors looking for higher risk and potentially higher return.

The post Why the James Hardie Industries plc share price is soaring  appeared first on The Motley Fool Australia.

More reading

• Warning sign? James Hardie shares may be losing momentum
• Why the recent ASX share market selloff is a wealth-building opportunity
• Are these ASX blue chips now too cheap to ignore?
• 3 ASX shares down 25% (or more) to buy right now
• Down 25%! Is this resurgent ASX 200 stock a strong buy?

Aged care provider Estia Health Ltd (ASX: EHE) suffered a weak start in today's trading on the ASX. Investors saw the billion-dollar company's shares sink by more than 8% in early trading.

Before today, Estia shares had delivered strong returns — rising in value by around 30% over the last 12 months. What does today's news suggest about Estia's prospects in 2016?

Why did this happen to Estia Health shares? 

This morning, Estia announced that net profit after tax (NPAT) grew by 16% to $23 million in the six months ending 31 December 2015. Revenue grew much more strongly — up 43% at $196 million.

When investors see a big difference between growth rates of sales and earnings, they tend to inspect profit margin trends and what's driving them. In Estia's case, its strategy of acquiring relatively low-margin businesses has pushed down its ratio of earnings before interest and tax (EBIT) to sales by several percentage points.

It seems Estia may have underestimated the costs of integrating recently-purchased aged care businesses Padman, Cookcare and Kennedy. That would help explain why Estia has fallen short by more than $3 million of this period's EBIT target that it set out in its prospectus when it joined the ASX in December 2014.

On the bright side, Estia reasserted its prior guidance for NPAT growth of more than 25% in the year ending 30 June 2016. It will also pay an interim dividend of 12.8 cents per share, up 16% on the dividend from one year earlier.

What's next for Estia Health Ltd? 

Estia understands investors will mark it based on its ability to boost profit margins as it works toward its target of adding more than 1,100 net new beds by 2020. The group is funding its expansion with debt, which raises the stakes for investors.

When you also consider that Estia is highly exposed to potential regulatory change, you can see why investors might hesitate to value this stock at a premium price.

Foolish takeaway 

Aged care might seem like a low-risk industry, but before you invest, you should think about the differing growth strategies of firms like Regis Healthcare Ltd (ASX: REG) and Japara Healthcare Ltd (ASX: JHC). You should also consider how each firm plans to fund its growth, and if debt is a factor, how comfortable you are with the risks that rise with heavier borrowing.

The post Why the Estia Health Ltd share price crashed today appeared first on The Motley Fool Australia.

More reading

• Up 2,000% in a year, why this ASX healthcare stock is in focus today
• Why Monash IVF, NAB, Viva Energy, and Worley shares are falling today
• Why this $9 billion ASX stock is edging closer to record highs today
• Up 130% in a year, are Lynas Rare Earths shares still a good buy today?
• Why Navigator Global, St Barbara, Vulcan Energy, and Zip shares are racing higher today

Shares in building products supplier Fletcher Building Limited (Australia) (ASX: FBU) were down by more than 3% in today's trading. At around $6.15, the shares have dropped to what has proven to be a key level of support over the past few years.

Fletcher Building has endured a tough year as its share price has fallen by nearly 28% over the last 12 months — though it has paid out reasonable dividends through the period.

Why did this happen to Fletcher Building shares?

This morning, Fletcher announced net earnings after tax of $172 million for the six months ending 31 December 2015. That's a nice headline compared to its $114 million profit in the prior comparable period, but a closer view of the result reveals that Fletcher faces headwinds.

Operating earnings excluding significant items, like goodwill impairment and gains on asset sales, were down 4% year on year at $278 million. With underlying earnings going backwards and revenue at a virtual standstill (up 2% at $4.4 billion), investors needed some upbeat outlook commentary to support the stock today.

That's not what the market got from CEO Mark Adamson, who told Fairfax this about Australia's new housing starts:

'The resi boom in Australia is a hell of a boom, I just don't see it continuing. It is more likely to drop from 210,000 [new dwellings a year] to 150,000 in the next few years.'

That downbeat assessment explains why investors have overlooked the fact that several of Fletcher Building's Australian businesses — Laminex, Iplex, Fletcher Insulation, Rocla Pipelines, Stramit and Tasman Sinkware — all grew earnings compared to a year earlier.

Fletcher Building does expect that it will continue to benefit from strong market conditions in the New Zealand construction industry. However, investors have honed their attention today on the mixed outlook for the Aussie residential and commercial construction business.

With the share price of Fletcher Building's listed peer Boral Limited (ASX: BLD) falling in sympathy today, investors in the building products sector seem to be bracing for a rough ride.

What's next for Fletcher Building Limited (Australia)?

In the face of cooling conditions for Australia's construction market, it's pleasing that Fletcher Building is seeking to sell more innovative 'value-added' building products. To the extent that new products can help to boost Fletcher Building's pricing power, this move could drive revenue growth.

The firm is creating a strong competitor in the New Zealand windows and doors market as it forms a joint venture with aluminium manufacturer and supplier Nalco. It is also growing its dividend in NZD terms, which could make Fletcher Building an attractive yield play after 12 months of share price shrinkage.

Foolish takeaway

Companies exposed to the construction industry are a good example of what we call 'cyclical' stocks. Their share prices typically rise and fall rapidly in reaction to expectations of future economic growth or decline.

That means a stock like Fletcher Building is best suited to hands-on investors who can follow its outlook closely and trade when the conditions warrant it.

The post Why the Fletcher Building Limited (Australia) share price is sinking today  appeared first on The Motley Fool Australia.

More reading

• Why 29Metals, DGL, Fletcher Building, and Newmont shares are falling today
• Fletcher Building posts positive Q3 volumes amid new global risks
• 4 ASX shares at 52-week lows: Buy, hold, or sell?

Shares in packaging maker and distributor Orora Ltd (ASX: ORA) enjoyed a strong start in today's trade, up nearly 2% this morning. The Orora share price has risen by more than 12% over the past year, but if you include the healthy dividends Orora paid its shareholders in 2015, its shares have returned more than 16% in the period.

Why did this happen to Orora shares?

This morning, Orora announced a strong result for the six months ending 31 December 2015. Net profit after tax surged by more than 27% to $87.9 million.

That's an impressive headline figure, but Orora's revenue growth of 13.9% is nothing to be sneezed at. The packaging maker deserves a tick for leveraging sales growth with business improvement and cost control to deliver robust earnings and operational cash flow. It's also worth noting that nearly $6 million of Orora's net profit came from selling land at Petrie in Queensland.

With market conditions in Orora's Australasian business relatively flat, the bulk of the profit growth came from the North American market. The weaker Aussie exchange rate to the US dollar made Orora's US divisional earnings look better, while the low price of oil seems to have helped Orora minimise fuel and transport costs.

Orora capped its result with an interim ordinary dividend of 4.5 cents per share, up nearly 29% on last year. Today's announcement should please shareholders drawn more recently to Orora's defensive earnings profile, as well as those who have owned the stock since it demerged from Amcor Ltd (ASX: AMC) in late 2013.

What's next for Orora Ltd?

It's pleasing to see Orora deliver a result like this in the face of global economic conditions that are muted at best and volatile at worst. The firm expects to continue to drive organic growth in 2016 as its glass business sees stronger demand, group productivity improves and acquisition opportunities present themselves. It's not hard to see why investors have been happy to bid up the Orora share price today.

Foolish takeaway

16% is a very healthy annual return for a $2 billion stock caught in a bear market. This week, Orora and its former parent Amcor have both shown that unsexy businesses can generate strong returns in dicey economic conditions. That's why these kinds of defensive stocks never fall too far from favour — and it's what can make them a sensible long-term investment.

The post Why the Orora Ltd share price is rising today  appeared first on The Motley Fool Australia.

More reading

• What's this broker's updated view on this ASX materials stock following a 25% fall?
• 5 things to watch on the ASX 200 on Monday
• Why Beetaloo, Fortescue, Orora, and Whitehaven Coal shares are dropping today
• Why Orora, Select Harvests, Tamboran, and WiseTech shares are sinking today
• Why is this ASX 200 share sinking 16% today?

Shares in Australia's biggest rail freight operator, Aurizon Holdings Ltd (ASZ: AZJ), are down by around 5% in Monday's trade. Aurizon's weak share price stands in stark contrast to the benchmark S&P/ASX 200 index, which is up around 1% in sympathy with buoyant overseas markets.

Traders have now erased around one third of Aurizon's market value since the start of December. Could today's selloff mark the bottom for Aurizon's share price?

Why did this happen to Aurizon shares?

This morning, Aurizon announced a statutory loss after tax of $108 million for the six months ending 31 December 2015. This result includes $426 million of impairment charges, $186 million of which were newly announced today.

The new impairment charges relate almost entirely to Aurizon's proposed iron ore project in West Pilbara. The toughening of the market for iron ore has been well documented over the past few months, so it seems investors had likely already priced in today's writedown.

Investors would have paid closer attention to Aurizon's outlook statement. This revealed that the company expects an uptick in earnings before interest and tax in the six months to 30 June 2016 — but that this depends on stable freight and iron ore volumes and 'no material deterioration in trading environment for customers and no major weather impacts'.

Investors may view that expectation as a little heroic, particularly in light of these comments from Aurizon's CEO Lance Hockridge:

'Our underlying business is strong and resilient but we need to respond rapidly in a very challenging business environment for our customers. Cost reduction and transformation will remain the key drivers of margin growth and shareholder value creation, and we're determined to pull every cost and efficiency lever available to us.'

What's next for Aurizon Holdings Ltd?

After nearly three months of negative price action for Aurizon, its shares have sunk to a three-year low — trading at around 13 times the market's expectation of next year's earnings.

It could be a little short-sighted for investors to sell down Aurizon's share price purely based on its exposure to the iron ore market. The main game for Aurizon is in coal haulage, where it moves high-quality Queensland product which should stay in relatively high demand.

The jewel in Aurizon's crown is its unique network of rail track assets. Infrastructure investors with deep pockets could be viewing Aurizon's regulated assets with great interest after the stock's recent downturn.

Foolish takeaway

The short-term outlook may seem bleak for firms that ship what miners produce. But the most successful investors have the foresight to look through the business cycle.

If you can take that approach, you might look back in a year or two on an investment today in unique, regulated infrastructure assets as a strategic triumph.

The post Why the Aurizon Holdings Ltd share price is sinking today  appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today

The Aussie stock market has cut a forlorn figure since early 2015. Since the S&P/ASX 200 came within a whisker of 6,000 points back in April, the market has slumped by around 20%.

The gloomy outlook has put a lot of listed companies under pressure. It shouldn't surprise you that there are far more stocks trading at 52-week lows on the ASX than at 52-week highs. Many household name stocks are cheaper today than at any point of the past year or longer.

Let's take a look at two well-known Aussie stocks that have fallen to 12-month lows — Incitec Pivot Ltd (ASX: IPL) and Amcor Limted (ASX: AMC) — and see if their share price declines are justified.

Why Have Incitec Pivot and Amcor shares dropped to 12-month lows?

Incitec Pivot makes and distributes industrial explosives and fertilisers. As such, its fortunes are strongly linked to those of the mining sector.

Incitec Pivot has battled gamely through the Aussie mining bust by cutting costs and paying down debt, but it's an environment that leaves no room for error. That's why investors savaged Incitec Pivot shares in January after a supply train derailed in Queensland, wiping an estimated $14 million from full year net profit after tax.

More importantly, fertiliser prices have been weak — which has seen investors shun Incitec Pivot in a soft stock market. Incitec Pivot shares are down nearly 24% over the past year.

Packaging giant Amcor traded sideways through much of 2015's weakening stock market environment. Strong returns on funds employed by its plastics and packaging businesses insulated Amcor from much of the market malaise.

So far in 2016, the market has responded negatively to Amcor's acquisition of an American and a Chinese packaging business for a total outlay of around US$58 million, and to a management shakeup in Asia.

Investors seem to be bracing themselves for a downbeat half-year profit announcement later this month. Amcor shares are down around 6% since this time last year.

What's next for Incitec Pivot and Amcor shares?

Incitec Pivot seems a risky bet. The supply and demand dynamics of the fertiliser market do not seem to be moving in Incitec Pivot's favour. Its share price has not yet fallen into 'deep value' territory and investors seem to be factoring in an uplift from Incitec Pivot's investment in an ammonia plant in the US. The bar seems high for Incitec Pivot to impress investors in this environment and you can't discount the risk of a profit warning over the next three months.

Meanwhile, the fundamentals of Amcor's business seem intact. The Amcor share price seems to have dropped in sympathy with the broader market and on the basis of foreign exchange movements. Amcor strikes me as a stock with defendable growth characteristics. In a market where investors are scratching around for reliable growth prospects, that makes a stock like Amcor unlikely to fall too far out of favour.

Foolish takeaway

A market downturn often gives you a chance to invest in a decent business at a discount price. Before you buy a stock just because it looks cheap on a chart, think about the riskiness of its industry and the strength of its competitive position. A little analysis can go a long way in avoiding investment landmines.

The post Why have Incitec Pivot Ltd and Amcor Limited shares fallen to 12-month lows?  appeared first on The Motley Fool Australia.

More reading

• What's this broker's updated view on this ASX materials stock following a 25% fall?
• 5 things to watch on the ASX 200 on Monday
• 5 oversold ASX 200 shares to buy according to Wilsons

Aussie steel producer BlueScope Steel Limited (ASX: BSL) is enjoying strong trade today. The BlueScope share price has rocketed by more than 13% in early trade. BlueScope's market value is now close to a 12-month high.

Today's price action caps a pleasing seven months for BlueScope in which its market value has grown by more than 77%. Is there enough steam left in this rally for you to profit if you invest now?

Why Did This Happen to BlueScope Shares? 

This morning, BlueScope announced preliminary unaudited earnings for the six months ending 31 December 2015. Before tax, BlueScope expects that underlying earnings were around $230 million.

Although we won't see BlueScope's audited result for another 10 days, today's announcement effectively represents a $50 million upgrade to BlueScope's prior guidance for earnings in the period of around $180 million.

Before today, the market's consensus expectation was for BlueScope's earnings before interest and tax for the year ending 30 June 2016 to be around $335 million. Today's news will likely push those estimates up.

BlueScope has grown its profit margin by cutting costs and growing domestic volumes. It's clear that the deal BlueScope struck with unions and the NSW government in October last year to stop the Port Kembla steelworks from shutting has helped to boost the firm's profitability.

Events abroad have also helped BlueScope. According to the China Iron and Steel Association, Chinese steel mills lost a cumulative US$7.3 billion in 2015 as steel prices collapsed and domestic demand spluttered.

BlueScope's competitors in China have responded by cutting production. UBS reports that Chinese steel output fell by an annualised 6% in December. Anecdotally, today's volatile economic environment is making it hard for many Chinese steel mills to obtain financing.

These industry dynamics are positive for regional steelmakers like BlueScope. That explains the market's strong approval of BlueScope's profit upgrade today, which has sent its share price soaring.

What's Next for BlueScope Steel Limited? 

It's tempting to assume you've missed the boat when you see a large stock rise by more than 10% in a day. But you should remember that BlueScope shares are still rising off a relatively low base.

Although BSL shares have risen to around $5 today, less than two years ago they traded at more than $6.50 apiece. Before the cycle turned down for Australia's resources industry in 2011, BlueScope shares were worth much more.

BlueScope's self-help initiatives around cost cutting should continue to underpin solid earnings. Many of its competitors in China are running at a loss, and there's plenty of scope for investor sentiment on BlueScope to continue to improve. That means this big Aussie steelmaker is worth close consideration.

Foolish takeaway

Today's news on BlueScope reveals that it's not all doom and gloom in the Aussie materials sector. Industries like steelmaking will never go away entirely…and if you can pick a relative winner and invest while profitability is rising, you could set yourself up to make rapid gains.

The post Why BlueScope Steel Limited shares are soaring today appeared first on The Motley Fool Australia.

More reading

• Is takeover tension sending this ASX steel stock soaring?
• This ASX steel stock is unlocking hidden value. So why is it falling today?

Investors in Bank of Queensland Limited (ASX: BOQ) copped a rude surprise on Tuesday morning. BOQ released a one-page strategy update which raised troubling questions about the bank's direction.

Investors have spent the last two days washing their hands of BOQ. The bank's share price tumbled by a total of more than 14% from Tuesday morning to Wednesday night.

Does this savage price action suggest more pain to come, or have Bank of Queensland shares overshot into value territory?

Why Did This Happen to BOQ Shares?

On Tuesday, BOQ announced that it would reshape its organisational structure to support its strategy. The bank plans to spend $15 million of pre-tax earnings over the next six months to 'implement the change initiatives'.

That's a nice way of explaining that BOQ needs to cut its cost to income ratio and that its first steps may be to make around 50 jobs redundant.

Investors can understand downsizing as a fact of life in modern corporate Australia. Most punters would likely approve of BOQ's plan to automate back office functionality and digitise the business. But BOQ's next comment about the restructure spooked the market:

'The uncertainty in the global economic outlook over recent months has resulted in a significant increase in volatility in funding markets. While strong competition for new business remains, this creates headwinds for our margin outlook.'

Basically, the markets where Bank of Queensland sources its funds got increasingly tough over the second half of 2015. The cost of borrowing on jittery international markets has risen for the firm.

At the same time, competition for home loans has intensified, with smaller lenders offering cheap rates to grab market share from the major banks. These factors have combined to pressure Bank of Queensland's profitability.

What's Next for Bank of Queensland Limited?

Volatility in funding markets is bad news for all Aussie banks, but it's even worse for a second-tier lender like Bank of Queensland. BOQ has done a decent job of closing the gap to its peers' profit margins over the last few years, but this week's outlook statement suggests that the catch-up theme could be set to reverse.

On that basis, this week's share price tumble seems justified — and although BOQ has dropped to a two-year low, it's hard to see the stock as great value just yet.

Foolish takeaway

Bank of Queensland's admission of margin pressure could spell bad news for shareholders of the big four Aussie banks: National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).

Weakness in the global economic outlook has caused the banks' wholesale funding markets to deteriorate. It's an environment likely to throw up more losers than winners in the financial services sector. That means now is not a time to sit idly by with your portfolio loaded full bank stocks — a tactical reweighting away from the banks could be wise.

The post Why Bank of Queensland Limited shares are tanking  appeared first on The Motley Fool Australia.

More reading

• 6 ASX 200 shares downgraded by the experts this week
• Buy, hold, sell: Bank of Queensland, Koala, and Westpac shares
• Are Westpac and Bank of Queensland shares a buy, hold or sell?
• Why Bank of Queensland, Guzman Y Gomez, NextDC, and Telix shares are racing higher today
• Why is everyone talking about Telix, Bank of Queensland and NextDC shares today?

The share price of gold producer Newcrest Mining Limited (ASX: NCM) is bucking the bearish trend of the broader Aussie resources sector. As at today's open, Newcrest shares have rocketed by more than 30% since the start of February. On Tuesday alone, Newcrest was the only stock in the ASX top 50 to post a rise — it soared by a massive 8.2%.

Newcrest investors would be chuffed with their capital growth of nearly 49% over the last three months — particularly against an Aussie stock market that has declined by more than 5% over the same period.

Why Is This Happening to Newcrest Shares?

Investors have taken heart from Newcrest's December quarterly report, which showed that Newcrest is growing gold production while lowering its all-in sustaining cost. Newcrest's management appear to have a firm handle on the profit drivers they can control.

But the one profit driver gold mining managers can't control — the selling price of their product —tends to have the strongest impact on a firm's share price.

Over the last two months, the price of gold in New York has rallied by more than 11%. But if you're an Aussie investor watching Aussie gold stocks, here's a chart of much greater relevance.

This chart shows the Aussie dollar price of gold — which is to say that it adjusts the US dollar gold price for movements in the AUD. As you can see, the price of gold in Aussie dollars has risen by more than 15% over the last two months.

A surging Aussie gold price partly reflects the ongoing weakness of the Aussie dollar, and partly reflects gold's rising attractiveness as a haven in times of financial turmoil.

With Aussie dollar gold at a three-year high, many gold stocks that trade on the ASX are hitting new highs. It helps to explain why a stock like St Barbara Ltd (ASX: SBM) turned from a small-cap also-ran this time last year into one of 2015's strongest performers on the Aussie stock market.

What's Next for Newcrest Mining Limited?

It will be hard for a large mining stock like Newcrest to maintain such powerful upward share price momentum. Yesterday morning, Newcrest announced that a 'geotechnical event' had trapped one of its workers about 300 metres underground in one of its Indonesian mines.

You need look no further than November's disaster in Brazil which ensnared BHP Billiton Limited (ASX: BHP) to see how safety issues can devastate mining companies. Although yesterday's news is on a much smaller scale than the Samarco disaster, it's the kind of event which could prompt regulators to scrutinise Newcrest's safety policies. Even the whiff of a government crackdown can put serious pressure on the stock price of companies in these situations.

What's more, investing in a stock like Newcrest is necessarily a punt on the direction of the gold price — the movement of which can make fools of us all. That makes Newcrest a much riskier potential investment than its blue-chip peers in the ASX 50.

Foolish takeaway

Just because a stock is one of the largest on the ASX doesn't necessarily make it a safe 'blue chip' investment. Small moves in commodity prices can make or break resource companies, even big ones like Newcrest. When those moves are favourable, share prices can rally hard — but that risk can cut both ways.

The post Will the Newcrest Mining Limited share price keep soaring?  appeared first on The Motley Fool Australia.

More reading

• Up 2,000% in a year, why this ASX healthcare stock is in focus today
• Why Monash IVF, NAB, Viva Energy, and Worley shares are falling today
• Why this $9 billion ASX stock is edging closer to record highs today
• Up 130% in a year, are Lynas Rare Earths shares still a good buy today?
• Why Navigator Global, St Barbara, Vulcan Energy, and Zip shares are racing higher today