Why Shares In Majestic Wine PLC Plummeted

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in the Majestic Wine (LSE: MJW) fell 19% to 410p after the firm downgraded its growth forecasts for 2015. The AIM-listed company, which is the UK’s biggest champagne seller, expects “a flatter growth profile” next year.

So what: Majestic has revised its profit guidance, prior to its upcoming final results. Despite like-for-like sales growth of 3% in the 10 weeks to Christmas — described as “satisfactory” — the beginning of 2014 has proven challenging. For the financial year as a whole like-for-like sales should be flat.Majestic Wine

Now what: The wine merchant will increase increase capital expenditure to underpin its future growth prospects. The plan is to expand its store base to over 300 while making infrastructure enhancements.

These investments include new offices, a larger distribution facility, the establishment of an in-house e-commerce team and the bolstering of its commercial sales team.

The chief executive, Steve Lewis, commented:

“The Majestic proposition remains compelling to the consumer and our future growth prospects remain bright. I am confident that the investments we are making over the course of the next twelve months will drive future shareholder value.”

Before today, analysts were expecting Majestic Wine’s upcoming annual results would reveal earnings per share of 28p, which would imply that the shares trade on a P/E of 15. Shares in Majestic offer a prospective income of 4.1%.

The decision to ‘buy’ — based on those ratings and today’s trading statement — is solely up to you.

Is a 20% plunge justified?

Of course, while a 20% fall in value a single day is shocking, in the long run -- 5 years or more down the road -- this may be just a narrow kink.

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Mark does not own shares in Majestic Wine. The Motley Fool has recommended shares in Majestic Wine.