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This stock’s slumped 40%+ in two days! Is it the opportunity of a lifetime for ISA investors?

Sirius Minerals and Thomas Cook Group have commanded the bulk of negative headlines in recent days but spare a thought for shareholders over at PureCircle (LSE: PURE), too.

PureCircle — which claims to be “the world’s leading producer and innovator of great tasting stevia sweeteners for the global food and beverage industry” — has seen its share price clatter 41% lower since Friday’s open. The reason why? The postponement of full-year results originally slated for today due to some serious accounting errors.

Not so sweet

According to the small-cap, its auditor, PricewaterhouseCoopers has identified “a potential issue relating to the classifiation and valuation of certain inventory items,” while assessing financial statements for the fiscal year ending June 2019. A formal investigation is now under way.

PureCircle estimates that the issue could cost it up to $30m, although it commented that it’s “unable to determine whether or not the potential issue is material or whether it is limited to [fiscal 2019].” It added that while there’s no sign that the anomaly will have an impact on net debt or cash generation, the business will be approaching its lenders with a view to seeking appropriate waivers under its banking arrangements as required.

New products 

This isn’t the first time that PureCircle has spooked the market recently. Back in July it advised that sales for fiscal 2019 would fall short of expectations (at $125m) because of delayed product launches which slipped into the current financial year.

The sweetener manufacturer’s been taking steps to overhaul its product spectrum of late to concentrate on the better-tasting and higher-margin Reb M range. This improving mix has already had a marked effect on gross margins (up 2.4% during July-December, to 39.2%), though for the moment this is having a cannibalistic effect on its base business. In the first half, total sales dropped 5.2% to $50.7m.

Is it a buy?

PureCircle, then, clearly isn’t without its troubles. But there’s no doubting that the business has terrific potential as consumers increasingly switch from sugar to sweetener alternatives.

Indeed, a recent report from Mordor Intelligence suggests that the global stevia market will rise by a compound annual growth rate of 8.43% through to 2024, and will be worth a whopping $934m by the end of the period.

The battle against obesity and diabetes in the West, combined with booming population levels and rising incomes in emerging markets, look set to drive demand for zero-calorie stevia products to the stars. And through its strong pipeline and improving range of applications, PureCircle has huge potential to ride this tiger.

But does this make the business a buy right now? Not in my book. Its share price might have dropped significantly, but it still looks quite expensive on paper with a forward P/E ratio of 31.2 times. And this high rating gives it plenty of scope to keep sinking should more trouble related to its accounting practices occur, and/or extra product launch delays also transpire. I’m quite happy to sit on my hands for the time being.

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Royston Wild 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.