The Motley Fool

Should you buy this fallen growth stock after 20% price crash?

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.

Arrow descending on a graph portraying stock market crash
Image source: Getty Images.

Shares in Dialight (LSE: DIA) slumped by as much as 23% in early trading Tuesday, making it the FTSE’s biggest early faller after the company warned that full-year profits will be hit by Donald Trump’s trade war with China.

Reiterating that the leading supplier of LED lighting is still in recovery mode, the firm told us it has “seen early signs of recovery but this has been hampered by the slowdown in the global markets,” adding that “with our exposure to US markets, the uncertainty of the trading relationship with China continues to be a significant headwind.”

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Though 2018 results were resilient, full-year EBIT for 2019 is now expected in the range of £5m to £8m, after a further adjustment of around £6m in non-underlying costs.

Delayed recovery

In the firm’s Signals and Components business, some recovery had been expected in the second half, but that’s not now anticipated until Q2 2020 after a “difficult year, with market conditions remaining weak.”

The Dialight share price has lost three-quarters of its value since June 2017, so is it worth buying now in anticipation of a 2020 recovery? Forecasts are now out of date and likely to be wildly optimistic, and I can see the share price declining further if the new estimates are as pessimistic as I fear.

There haven’t been any dividends for a few years, and the predicted return to annual payments in 2020 is now looking very unlikely indeed. Then there’s net debt, which stood at £11m at the interim stage, and that’s worryingly high compared to the new earnings outlook.

No, I’m sticking to my recovery investment strategy, and I won’t buy shares until I see the recovery actually happening.

Another downgrade

Equiniti Group (LSE: EQN) figured high in the list of morning fallers too, briefly dipping 25% before settling at around 10% down, and again, we’re looking at sustained weakness with a 28% fall since March 2018.

The international technology-led services and payments specialist has downgraded its outlook. Though revenue should come in towards the upper end of expectations, earnings are now set to hit the lower end due to weakening in the firm’s higher-margin UK corporate activity.

Revenue is put at between £550m and £567m, with a range of £136m to £142m for underlying EBITDA.

There doesn’t seem to be any problem with client retention, with Equiniti counting BT, Centrica, Fidelity and Hewlett Packard Enterprise among the top names and telling us it has “continued or extended all relationships.” New client wins are said to be encouraging, with additions in all of the company’s divisions.

Long-term visibility

What I’m seeing in all this is a strong company with good long-term business lined up and with, in its own words, “good forward visibility of revenues.” I definitely see growth opportunities over the medium term too. I’m wary of debt, though, and Equiniti has indicated year-end leverage of between 2.3x and 2.5x. I’d like to see that come down, though in a period of tightening margins, that doesn’t seem likely to happen.

We’re looking at likely P/E multiples of around 11, which don’t look onerous, though high debt does distort the underlying value of that.  I’ll keep watching and will wait for full-year results.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.