The Avon Rubber (LSE: AVON) share price has just reached its lowest point since the outbreak of the pandemic last year. At the time I’m writing this, the share price has dropped 24% since 12 August.
In this article, I look at what has sparked this drastic drop in price and if this has provided me with a new buying opportunity.
The Avon share price gets hit hard
Before the crash, the share price was actually gaining some considerable momentum. It was up by 20% since mid-July. Perhaps this increase was a reflection of the positive financial results the company reported in its FY21 interim results. Orders received rose to £167.9m, and revenue had risen to £122m, a 41% increase since March 2020.
So what has caused so many investors to lose interest so quickly?
The company has had troubles over delays in orders. A receipt of around $16m is expected to be held up. The issues have been pointed towards “procurement bottlenecks” which have slowed down the supply chain and shipments.
Avon hardly calmed my concerns in its recent trading update when it said that there are “remaining uncertainties as to the timing of receipt of other orders that we expect to receive and ship before the end of the financial year”.
In the report, Paul McDonald, the chief executive officer for Avon, said that this is only a short-term disruption and the issues will be resolved in the following months.
As a result of these delays, the company expects an overall revenue reduction to $245m-$260m.
I’m slightly concerned with this disruption. It leaves me with the question of whether Avon can adapt to COVID-19 related issues if the pandemic rears its ugly head again.
Is this a buying opportunity?
While the delay has had damaging effects on the company’s expected revenue, the hold up has been caused by pandemic’s tightening effects on the US labour market. So, I think that this could be just a short-term blip in trading as the global economy recovers.
Avon reported that this won’t have any impact on its FY23 expectations so for now there seems to be no long-term destructive residue lurking from this event. The company has also reported in a contract update that there has been progress made in the delayed product approvals.
For this reason, I’m considering jumping on this opportunity. While some of the effects of the pandemic are clearly still causing problems, it seems as if the world is reopening and delays like this should just be a rare occurrence.
Also, I think the drop in price is quite drastic considering that the company has consistently produced good financials. Although, I’m a little apprehensive that the delay has caused such an outburst from investors, I’ll be monitoring the Avon share price for a possible future investment.
