Why did the QinetiQ share price crash on Thursday?

News of a supply chain problem sent the QinetiQ (LSE: QQ) share price tumbling on Thursday. I think I see a buying opportunity.

| 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.

The QinetiQ (LSE: QQ) share price crashed 43p on Thursday, losing 13% of its value. That made it by far the FTSE 250‘s biggest loser on the day. It comes on the back of the defence group’s Q2 trading update, ahead of interim results due on 11 November.

The news release spoke of a “strong underlying operating performance,” and an “excellent order intake at £700m, 25% higher than the first half of FY21.” But that didn’t protect the shares from the latest curse of supply chain problems.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

The company said: “We are experiencing technical and supply chain issues on a large complex programme, which, if unmitigated, could result in the need for a one-off write down to our short-term guidance.” QinetiQ went on to say that it’s working towards “mitigating this risk to less than £15m.”

For a company with turnover last year of £1,278m, and a pre-tax profit of £124.7m, that doesn’t seem like too big a horror story to me. But these days, any mention of supply chain issues seems almost certain to send shareholders rushing for the exit. So has the reaction been overdone, and does it give me a buying opportunity for my Stocks and Shares ISA?

QinetiQ share price performance

Well, firstly, I need to put the QinetiQ share price fall into perspective. Essentially, what’s happened is that Thursday’s drop has wiped out the stock’s progress over the previous year. We’re now looking at a 12-month rise of just 4%, from the 20% gain the shares were at the day before.

Over five years, QinetiQ shares have gained 27%, a bit ahead of the FTSE 250’s 22%. Oh, and the FTSE 100 has managed just 2.8% in the same timescale. So we’re looking at a higher growth index, and a stock that’s above the index average. And that’s after Thursday’s surprise one-day slump.

But back to the trading update. To illustrate how it doesn’t seem to be too worried about the current problem, the company told us it’s maintaining its medium- to long-term guidance. QinetiQ is still targeting “mid-single digit percentage compound annual organic revenue growth over the next 5 years.” And maybe some extra growth should strategic acquisition opportunities come up.

Healthy cash situation

Operating cash flow was said to be good. And at 30 September, the balance sheet boasted approximately £140m in net cash. Never mind companies struggling to recover from the pandemic crisis under increased debt loads, this is what I like to see.

What’s the risk? Well, how often have we heard one warning like this and then been hit by further bad news later? Perhaps there are more supply chain problems hiding round the corner, ready to pounce on us as soon as we let down our guard.

I think suspicions like that could well explain the scale of Thursday’s QinetiQ share price drop. But isn’t this a good time to buy, when pessimism is high and shares are low? I think so.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Alan Oscroft has no position in any of the 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

Social media and digital online concept, woman using smartphone
Investing Articles

Apple stock: Buffett is long, Burry is short. What should I do?

Our author thinks about whether following Warren Buffet into Apple stock might be a good addition to his portfolio –…

Read more »

Close-up of British bank notes
Investing Articles

5 ‘no-brainer’ dividend shares to buy today

Is there an easy way to narrow down the list of FTSE 100 dividend shares? I try one approach, with…

Read more »

Close-up of British bank notes
Investing Articles

£5,000 to invest? 2 dividend-paying penny stocks I’d hold to 2030

I think these high-yielding penny stocks could help cushion the impact of high inflation on my returns. Here's why I'd…

Read more »

Renewable energies concept collage
Investing Articles

2 green stocks that I think are no-brainer buys for the future

Jon Smith explains two of his favourite green stocks at the moment, one for growth and the other for income…

Read more »

An airplane on a runway
Investing Articles

The Rolls-Royce Share price may be set for take-off!

After an upbeat Civil Aerospace Investor Day, here's why I think the Rolls-Royce share price could be set for take-off…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 beaten-down growth stocks to buy as inflation rises

Despite inflationary pressures and recession concerns, I am looking at some top growth stocks to solidify my portfolio over the…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Is the IAG share price too good to miss at current levels?

Jabran Khan delves deeper into the current state of play with the IAG share price and decides if now is…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

5 of the highest-paying income stocks compared! Which one is best for my portfolio?

Income stocks are certainly in vogue right now amid sky-high inflation. But which of these big dividend payers is the…

Read more »