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Kier shares are tanking. What’s the best move now?

Kier (LSE: KIE) shares have had a dreadful run recently. On Friday, the price slumped 36%. Today, the shares are down another 12%. Overall, the stock is down nearly 90% in the last 12 months.

Here, I’ll take a closer look at what’s going on at the embattled construction services group, and explain how I’d approach Kier shares now.

Basket case

It’s fair to say that news flow from Kier over the last six months or so hasn’t been good. For example, in late November, the group announced an emergency rights issue to raise £264m, creating 65m new shares. At the time, it sold these to investors at a near-50% discount.

Then in January, CEO Haydn Mursell stepped down with immediate effect and, in May, it also announced finance director Bev Dew will leave the group in September.

We also had a profit warning earlier this month in which the group announced underlying operating profit for the year will be about £25m lower than previous expectations, on top of an announcement in March that debt will be higher than previously expected, due to adjustments.

Much more recently, the shares slumped 36% on Friday after a newspaper reported the company was rushing to sell its housebuilding business at a discount.

Then today, the group announced that, after a strategic review, it will be suspending its dividend payments for FY2019 and FY2020 (kudos to Roland Head who predicted this). It also has plans to simplify the group’s portfolio by exiting non-core activities and reducing headcount by 1,200.

So overall, Kier has had a shocking run. And don’t forget, this is a stock Neil Woodford has had a large position in. He’s probably been forced to sell the stock in order to meet fund redemptions and this won’t have helped the share price.

What I’d do now

What’s the best move now then? Personally, I would continue to avoid the stock. While today’s announcement of a group simplification and a dividend suspension is a step in the right direction in terms of turning things around, I don’t see much investment appeal in the shares right now.

Yes, the shares are cheap (the forecast P/E is under 2), but the company’s debt problem is a long way from being sorted out. I would want to see significant evidence of debt reduction before buying the stock.

Additionally, it’s worth talking about short interest here. I originally warned about this issue in September after I noted short interest in Kier had surged to 18%. At the time, I said: “It’s worth being cautious towards the stock at this stage.”

Fast forward to today and the shorters have absolutely cleaned up with Kier, profiting nearly 90%. However, the stock still has a relatively high level of short interest at 6%, suggesting hedge funds believe the shares will fall further. As such, buying now is a dangerous strategy, in my view. 

Of course, with the shares down nearly 90% in a year, there’s a possibility they could rebound if we see some good news. However, for now, I’ll be avoiding the stock as I think the investment case is too risky.

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Edward Sheldon has no position in any 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.