Kier’s share price has tanked. Here’s my view on the stock now

Kier’s share price is down 50% over the last 12 months and down around 95% over the last three years. Is the stock worth buying now or should it be avoided?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

When I last covered Kier (LSE: KIE) shares, on 8 July, I said that they were starting to look interesting as a turnaround play. The company had just released an encouraging trading update, and the short sellers had backed off the stock.

However, I also noted that there were a few issues that concerned me. Kier’s high level of debt was one. Analysts’ earnings downgrades were another. So, I wasn’t prepared to rate Kier shares as a ‘buy’.

In hindsight, that was the right decision. Since my article, the shares have fallen from 78p to 50.6p – a decline of 35%. So, why has Kier’s share price fallen recently? And what’s my view on the stock now?

Why has Kier’s share price fallen?

One reason the share price has continued to fall recently is that full-year results published on 17 September were quite disappointing.

These results, which the group said reflected “nine months of good strategic progress and three months’ impact of Covid-19,” showed a drop in operating profit of 52% and a fall in adjusted basic earnings per share (EPS) of 50%. They also showed an 86% increase in net debt to £310.3m.

This financial year has been a difficult one for the group,” commented CEO Andrew Davies. Looking at these results, it’s clear that the company has been impacted significantly by Covid-19.

Another reason Kier’s share price has fallen is that City analysts have continued to lower their EPS forecasts for this year. Over the last month, for example, the consensus EPS forecast has fallen 11% to 33.3p. Earnings downgrades tend to put downward pressure on a company’s share price.

My view on Kier shares now

In light of the recent developments here, I see Kier shares as quite risky at present.

One issue that concerns me is the high level of debt. At 30 June, Kier had total equity on its balance sheet of £240.8m. So, its net debt-to-equity ratio (£310.30/£240.80) is 1.3. That’s a little too high for my liking.

I’ll point out that Stockopedia gives Kier an ‘Altman Z2’ score (this is a measure of financial strength) of -1.65. This indicates a ‘serious risk of financial distress’ within the next two years.

Another thing that concerns me a little bit is that no directors have purchased Kier shares in recent months. Even when the share price fell below 50p, no insiders stepped up to buy shares. This suggests that Kier shares may not be a bargain even at the current low price-to-earnings (P/E) ratio of just 1.5.

All things considered, I think the shares are best avoided for now. They may rebound at some stage. However, in my view, there is still risk to the downside.  

Why take a huge risk on Kier shares when there are so many great companies you could invest in right now?

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Is Warren Buffett losing his touch?

Our writer's noticed that Warren Buffett’s investment vehicle has underperformed the S&P 500 during three of the past four years.…

Read more »

Investing Articles

Non-energy minerals are the top performers in 2025. These small-cap FTSE shares are leading the charge

Mark Hartley examines which sectors are doing well in 2025 and the FTSE shares that investors should consider to benefit…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Buying 10,000 Vodafone shares generates a passive income of…

Vodafone shares have had a rough ride, with dividends slashed in half. But with its turnaround making steady progress, is…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Buying 1,000 Aviva shares generates an income of…

Aviva shares could be primed to thrive in the long run if its takeover of Direct Line is a success,…

Read more »

Investing Articles

At today’s price, buying 1,000 British American Tobacco shares generates a second income of…

Tobacco companies may not be popular, but the British American Tobacco share price is on the rise, along with its…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

The cheapest UK stock in my ISA is…

This UK stock currently trades at a massive discount to the market. Edward Sheldon believes it's mispriced and that there's…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

Buying 750 Phoenix shares generates a passive income of…

Phoenix shares offer one of the largest yields in the FTSE 100, but could dividends grow even larger by 2029?…

Read more »

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Investing Articles

Why buy UK shares when I can get 4.5% a year in cash?

Why take the risk of investing in UK shares when I can earn over 4.5% a year sitting in cash?…

Read more »