Buying a recovery stock can require a lot of patience.
Last week, McBride (LSE: MCB) issued a profit warning. A £235 million market cap specialist manufacturer of supermarket own-label cleaning and personal care products, the company promptly saw its share price plunge from around 180 pence to an intra-day low of 112 pence.
Yet there's nothing fundamentally wrong with the business. Manufacturers of competing branded products are lowering prices to retain market share, in short, and margins are tight as raw material prices inch upwards.
The directors certainly don't appear to be worried, as they've been buying-in -- and in quite hefty volumes.
Recovery play
Fool writer Kevin Ray thinks that the company is a buy, and I think he's right. It's a few years since I was last in one of the company's factories, but they certainly know how to run a lean operation -- which is no surprise with customers such as Tesco (LSE: TSCO), Sainsbury (LSE: SBRY) and The Co-operative Group as customers.
But if its price is presently too low, when might a rise be expected?
Certainly, those who dived in when prices first plunged will have made a quick buck, if they subsequently chose to sell. But others, I'm sure, will have a longer wait.
While healthily up from its low of 112 pence, for instance, today's share price of 131 pence is little changed from the 129 pence at which Kevin highlighted the company earlier this week.
Waiting it out
As value-oriented Fool writers Stephen Bland and David Holding are often reminding us, value can take quite while to out. And sometimes, it never does.
Much the same can be said of recovery plays -- particularly if the company in question was some kind of market darling. Back in the 1980s, for instance, I bought into Micro Focus (LSE: MRCO), following just such a precipitous fall in price. The wait, in short, was a long one.
Take a look at a couple of more recent falls in share price -- both of them in businesses with perhaps more appeal than McBride, where profit margins are razor thin.
GKN (LSE: GKN) shocked the market back in the spring of 2008. As the chart below shows, while the share price has recovered a little, there's still a long way to go. I'm convinced the business is a 'buy', and it's certainly on my watch list, but I won't be buying just yet.
Finsbury Foods (LSE: FIF) is another company that has yet to regain its former allure. The profit warning in November 2008 can clearly be seen in the chart below, and had been preceded by dribbles of bad news in the months before.
Again, it's a company that's on my watch list -- but had I bought into it when I first took a shine to the business, I'd now be sitting on a 25% loss.
Is this for me?
The moral from all this is clear. Disappoint the market, and your share price is toast. Regaining the market's trust can be done, but it's not an overnight transformation.
In short, like value investing, recovery investing can involve a long wait. So before taking a punt, always ask yourself: Have I the required patience? And if you haven't, then you probably shouldn't.
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