Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.
What: Shares of John Wood Group (LSE: WG) crashed by 10% to 717p in early trade this morning, after revealing that its 2014 growth might not live up to market expectations.
So what: John Wood’s shares have been priced for a significant step-up in profits this year, and earnings growth for 2013 is likely to come in as expected. But with projects coming to an end in the group’s Engineering division, today’s results reveal that engineering profits could be 15% lower next year. As a result, John Wood Group will probably grow more modestly in 2014 than the market had hoped — with other divisions offsetting this decline.
Now what: With the shares down by 10% on the news, it’s possible that the new valuation more accurately reflects the more subdued growth prospects for John Wood going forward, and might even present a value opportunity.
That being said, it’s also possible that the company’s mixed performance this year bodes poorly for the demand for future engineering projects. Project delays are never a pleasant sign for potential investors, who might now question if capital expenditure projects in the sector will slow down in future years.
