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Buy Or Sell? Cambian Group plc Down Over 30%, Servoca Plc Up More Than 20%

Shares in health services company Cambian (LSE: CMBN) have collapsed by as much as 47% today after it released a profit warning. The behavioural health specialist stated that underlying EBITDA (earnings before interest, tax, depreciation and amortisation) for the full year will not be less than £54m which, while it represents growth of 7.5% versus the previous year, is well short of previous guidance.

The reasons for the reduced forecast in profitability for the company are a significant increase in organic investment in new places, with capital expenditure of over £50m expected for the current year which is set to cause increased development losses. Furthermore, Cambian is also feeling the impact of staff vacancies which has reduced the number of admissions to its schools and children’s services.

Clearly, today’s update is hugely disappointing and investor sentiment has been dealt a major blow. However, Cambian is still set to make strong progress, with it due to deliver growth in the current year and, looking ahead, it expects that further investment in people and in its systems will underpin growth in 2016 and beyond.

In the short term, though, its shares could come under further pressure as the market digests today’s news flow. As such, it seems to be a stock to watch, rather than buy, until more information is gleaned regarding its ability to meet its future guidance.

Meanwhile, recruitment and outsourcing specialist Servoca (LSE: SVCA) has seen its share price soar by over 20% today after upgrading its guidance for the full-year. The company has stated that it now expects results to come in significantly ahead of expectations due to strength in both of its key divisions.

In the Education recruitment business, the crucial September month was hugely positive and Servoca now expects it to beat internal targets in the coming months. Furthermore, the Healthcare recruitment business carried strong momentum into the second half of the year and this pace of growth has accelerated, with the contribution to the company’s profitability from this space continuing to rise.

Looking ahead, Servoca was due to post a rise in earnings of 39% in the current year, which it now expects to beat. And, with further growth in net profit of 40% being pencilled in by the market for next year, it appears to be in the midst of a period of exceptional growth.

Despite this, it trades on a price to earnings growth (PEG) ratio of only 0.5 (using the lower growth forecasts which do not reflect today’s announcement) and this indicates that Servoca could be set to continue the run which has seen it soar by 83% since the turn of the year. Certainly, its shares could continue to be volatile but, for long term investors, they appear to be worth buying at the present time.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.