What is Happening to the Cover-More Share Price?

What does CVO do?

Cover-More [ASX:CVO] is a travel insurance and medical assistance provider operating in Australia and Asia. Put simply, the company writes travel insurance, managing medical assistance claims for travellers.

What’s happening to the Cover-More share price?

As you can see in the chart below, Cover-More’s share price has traded in a wide range over the past few years. After reaching marginal new highs in 2015, Cover-More’s share price began to trend lower in the second half of the year.

Cover More Share Price

Source: BigCharts

It is always worth looking at a share price chart before you invest. The declining share price in the latter part of 2015 told you to be wary of the stock. It was in a downtrend (trading below moving averages), which is a sign to avoid the stock.

The reason for the weakness became apparent on 16 February, 2016. CVO issued a trading update which showed a 15% decline in operating profit for the first half of the year. The company blamed higher claims expense for the profit drop, driven by a depreciating Aussie dollar.

This sent the share price plunging from $2 to as low as $1.40. It’s since bounced back a little, but the stock remains fragile.

What now for CVO?

Cover-More has an attractive business model. Travel, especially to Southeast Asia, is a strong growth market. You would therefore expect a business catering to travel insurance and related medical assistance to be a good one.

The problem is that these types of businesses become popular and, therefore, expensive. And when a company is expensive, it is susceptible to bad news. Prior to the 16 February profit warning, CVO traded on a P/E ratio of nearly 20 times.

That’s expensive. There’s no room for bad news when a stock trades on such a high multiple. While the fundamental nature of the business sounds good, the charts gave you plenty of warning to get out beforehand.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.

If you’d like to know more, click here.

Greg Canavan

Editor, Markets and Money

Join Markets and Money on Google+


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:

 


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money