The Motley Fool

The AVON share price just tanked 25%! Here’s what I’m doing about it

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.

Avon Rubber's MP-PAPR and N49 helmet
Image: Avon Rubber

As a fan of the company and one-time holder of its stock, today’s tumble in the Avon Protection (LSE: AVON) share price has really taken me by surprise. What’s behind this huge fall? Moreover, should I be tempted to load up while others are running for the exits?

AVON share price: what gives?

Today’s trading update from the self-styled “innovative technology group” certainly started well. The company said it had seen “good commercial progress” in the second half of its financial year. Indeed, order intake hit $221m in the 10 months to the end of July. This was an increase of 13% on that achieved over the same period in 2019/20. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

From this point however, things take a serious dive. Like many other businesses, the producer of “life-critical personal protection systems” for military customers and first responders has been impacted by issues with its supply chain. A “tight US labour market” following the pandemic hasn’t helped matters.

As a result, the company has been forced to cut its full-year revenue guidance. This is now predicted to come in between $245m and $260m due to orders not being received (and those received not being shipped). As one might expect, this reduction in revenue also has a knock-on effect on margins. These are now likely to fall to between 17% and 18% for the full year.

To make matters worse, AVON believes the aforementioned issues will “persist into next year.” Accordingly, revenue forecasts have been slashed for FY22 as well ($320m-$340m). Mercifully, FY23 guidance remains untouched… for now.  

Opportunity… or warning?

For a company that makes products designed to provide safety for those wearing them, Avon Protection was offering little comfort to its investors this morning. However, I wonder if today’s crash to the share price provides long-term growth investors like me with an opportunity.

Let’s run through some potential chinks of light. While we don’t know for sure how long these issues will last (and the market hates uncertainty), Avon Protection does expect recent disruption to be temporary. Margins will recover and the unexpected build-up of inventory will go out to customers eventually.

I fully expect the issues surrounding product approvals at its Military Ballistic business to be resolved as well. Investors have known about these for some time now. It was these that put the AVON share price in reverse since last December. Naturally, ongoing concerns relating to new variants of Covid-19 haven’t boosted sentiment around the stock.

Aside from all this, the FTSE 250 constituent is still a leader in a niche market producing essential equipment. I think this sets it apart from another heavy faller today. In fact, I wonder if today’s dip might attract the attention of potential suitors. After all, we’re seeing a lot of consolidation in the defence sector right now. 

A tempting buy

Far from scaring me, today’s fall is actually tempting me to get involved again. Even so, I wouldn’t necessarily go ‘all in’ at this level. Since there’s still potential for things to get worse before they improve, I suspect it would be better for me to take a starter position today. After all, there’s always a chance guidance will be lowered again.

I need the outlook to become a little less foggy before thoroughly committing myself.

One FTSE “Snowball Stock” With Runaway Revenues

Looking for new share ideas?

Grab this FREE report now.

Inside, you discover one FTSE company with a runaway snowball of profits.

From 2015-2019…

  • Revenues increased 38.6%.
  • Its net income went up 19.7 times!
  • Since 2012, revenues from regular users have almost DOUBLED

The opportunity here really is astounding.

In fact, one of its own board members recently snapped up 25,000 shares using their own money...

So why sit on the side lines a minute longer?

You could have the full details on this company right now.

Grab your free report – while it’s online.

Paul Summers has no position in Avon Protection. The Motley Fool UK has recommended Avon Protection. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.