What’s going on with the Rotork share price?

The Rotork share price is down by almost double-digits after today’s trading update. Zaven Boyrazian explores what’s going on.

| 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.

Stack of British pound coins falling on list of share prices

Image source: Getty Images

It’s turned into a rough morning for the Rotork (LSE:ROR) share price. After management provided a short trading update to shareholders, the stock has dropped by almost 9%, at the time of writing.

Despite this downward trajectory, the group’s 12-month return is still a respectable 10%. So what was in this announcement that has investors so upset? And should I look at this as a buying opportunity for my portfolio?

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!

A bit of background

As a quick reminder, Rotork is a global engineering company leading the charge in flow-control instruments. These are specialist tools used throughout several industries, including oil & gas, water & waste management, and chemicals production.

Although the business sells a niche collection of products, it seems demand from its customers remains strong. Why? Because over the last four months, order intake is up by a high single-digit percentage in-line with expectations.

Despite pandemic disruptions, customers are still spending increased amounts on upgrading or developing new facilities that require the firm’s instruments. Needless to say, rising demand and a growing pile of orders is a positive sign for the Rotork share price. So why is the stock falling?

Covid-19 versus supply chains

Developing and manufacturing specialist equipment requires unique components, specifically semi-conductor chips and electronics. But due to the pandemic, resource deliveries to the group’s manufacturing facilities are frequently delayed, often on short notice.

Consequently, several production lines have had to be shut down repeatedly for periods spanning up to several weeks. In other words, while customer orders are on the rise, Rotork is struggling to fulfil them.

Since the company usually gets paid on item delivery, revenue over the past four months is down year-on-year. And due to inflationary pressures pushing up the cost of raw materials, operating profit margins have also taken a significant hit. That’s obviously bad news for the Rotork share price.

Over the long term, supply chain disruptions will eventually be resolved. But in the near term, they’ll likely continue to pose a problem. At least that’s what management thinks since it provided guidance that expects revenue to stay depressed for the remainder of the year.

Is the falling Rotork share price a buying opportunity?

Seeing the revenue stream getting somewhat derailed is frustrating. But due to the exceptionally niche segment Rotork operates in, its list of competitors is quite short. And all of them are likely suffering from the exact same issues. That indirectly creates a bit of stickiness for customers simply because there isn’t really an alternative firm to source necessary components from.

Supporting evidence of this is clear since management anticipates “entering 2022 with a record year-end order book.” 

If the company can get its products off the manufacturing line and into customers’ hands next year,  today’s drop in Rotork’s share price could be a buying opportunity for my portfolio.

Personally, I’m going to wait and see what happens before committing to an investment. Therefore, Rotork is staying on my watchlist for now.

Instead, I'm far more interested in another growth stock with far more potential...

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Rotork. 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

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

5 ‘no-brainer’ income stocks to buy today!

Amid soaring inflation, I'm looking at these income stocks, offering big yields, to grow my portfolio.

Read more »

Trader on video call from his home office
Investing Articles

How I’d buy the dip in quality UK stocks with £750

Jon Smith explains the concept of buying the dip, and talks through the UK stocks he's going to buy at…

Read more »

Woman looking at a jar of pennies
Investing Articles

5 UK penny shares to buy with £5,000 today

It's hard to remember a time when there were as many tempting penny shares around as now. Here are five…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

The Scottish Mortgage share price keeps falling. Should I buy?

The Scottish Mortgage share price has collapsed from its all-time high in little more than six months. Is it now…

Read more »

UK money in a Jar on a background
Investing Articles

Value investing isn’t dead! My top stocks to buy as inflation hits 9%

As value investing principles come back into fashion, Andrew Mackie looks at the current backdrop and shares what he's investing…

Read more »

Windmills for electric power production.
Investing Articles

Which FTSE 100 shares would I buy to offset higher fuel bills?

Rishi Sunak unveiled a windfall tax this week, hitting shares of energy firms, and especially oil & gas producers. But…

Read more »

Concentrated young african american black guy sitting on heated floor at modern coffee table in living room, looking at laptop screen
Investing Articles

Woodbois shares: should I buy the dip?

Woodbois Ltd (LON: WBI) shares have backtracked from their recent high. Partial to the odd penny stock, Paul Summers considers…

Read more »

Businessman looking at a red arrow crashing through the floor
Investing Articles

Is the stock market crashing?

Markets are proving pretty volatile at the moment so are we headed towards a stock market crash? Dylan Hood takes…

Read more »