Why Metcash’s Share Price Fell Today

What Happened to Metcash’s Share Price?

The share price of food and liquor wholesaler Metcash [ASX:MTS] was the largest decliner amongst the top 100 companies today. Just before the market closed, the stock price was down over 4%. The selloff continues a horrible 12 months for the stock, with the share price now down over 55% in a year.

Why Did This Happen to MTS Shares?

Today’s selloff came on no news from the company. It’s likely that the prior day’s weak trading update from Woolworths is the reason behind the price fall. The market increasingly sees Metcash as a company lacking strategic focus. It supplies groceries and fresh produce to the IGA stable of grocery retailers, who are doing it tough against the dominant brands of Coles and Woolworths. Also, new Entrant Aldi is gaining market share.

What Now for Metcash?

Metcash’s share price has been in a nasty downtrend, more or less, since it peaked at around $5.50 per share in mid-2007. Over the past year, the downtrend has picked up pace, with the share price now approaching $1.20. Today’s move lower marks a new long term low for the stock, which is a bearish sign. It suggests earnings pressure will persist for the company and an earnings downgrade is likely.

The best shareholders can probably hope for is a takeover or perhaps a breakup of the assets, but that might be a little optimistic until you see further, deep share price falls.

Unless you want to punt on some corporate activity, this one looks like a value trap.

Regards,

Greg Canavan+
for Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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