fool.com.au writes the market has become increasingly bearish on funeral company InvoCare Limited (ASX: IVC) over the last several months. After hitting an all-time high of $18.15 on November 29, the company’s share price has fallen 29% to $12.82 as investors weigh the prospect of intensified competition and an underwhelming earnings outlook for 2018. The steep share price fall has also been accompanied by a significant rise in the amount of traders shorting the stock, with short interest rising from 2.80% to 7.76% as at April 18.
The InvoCare equivalent in the United Kingdom, Dignity plc, has seen its share price fall 60% since November due to fierce competition from smaller competitors and increased transparency of pricing that has seen customers shop around online for the best deal.
As a consequence, the company has lost market share and has been forced to slash its prices for a basic funeral by 25% in order to maintain its dominant market position.
The article speculates:
InvoCare issued a disappointing 2018 earnings outlook when it reported in February. The company expects operating 2018 EBITDA to grow in the low-single-digit range and operating earnings per share to be flat as it closes sites for refurbishment as part of its Protect and Grow program which will lower market share and sales revenue growth.
At current prices, InvoCare trades at around 22 times trailing operating earnings, which appears reasonable when factoring in the defensive nature of the business and its modest outlook for 2018.