The AVON share price just tanked 25%! Here’s what I’m doing about it

The Avon Protection plc (LON:AVON) share price is down heavily today. Paul Summers wonders whether this might be an opportunity.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As a fan of the company and one-time holder of its stock, today’s tumble in the Avon Protection (LSE: AVON) share price has really taken me by surprise. What’s behind this huge fall? Moreover, should I be tempted to load up while others are running for the exits?

AVON share price: what gives?

Today’s trading update from the self-styled “innovative technology group” certainly started well. The company said it had seen “good commercial progress” in the second half of its financial year. Indeed, order intake hit $221m in the 10 months to the end of July. This was an increase of 13% on that achieved over the same period in 2019/20. 

From this point however, things take a serious dive. Like many other businesses, the producer of “life-critical personal protection systems” for military customers and first responders has been impacted by issues with its supply chain. A “tight US labour market” following the pandemic hasn’t helped matters.

As a result, the company has been forced to cut its full-year revenue guidance. This is now predicted to come in between $245m and $260m due to orders not being received (and those received not being shipped). As one might expect, this reduction in revenue also has a knock-on effect on margins. These are now likely to fall to between 17% and 18% for the full year.

To make matters worse, AVON believes the aforementioned issues will “persist into next year.” Accordingly, revenue forecasts have been slashed for FY22 as well ($320m-$340m). Mercifully, FY23 guidance remains untouched… for now.  

Opportunity… or warning?

For a company that makes products designed to provide safety for those wearing them, Avon Protection was offering little comfort to its investors this morning. However, I wonder if today’s crash to the share price provides long-term growth investors like me with an opportunity.

Let’s run through some potential chinks of light. While we don’t know for sure how long these issues will last (and the market hates uncertainty), Avon Protection does expect recent disruption to be temporary. Margins will recover and the unexpected build-up of inventory will go out to customers eventually.

I fully expect the issues surrounding product approvals at its Military Ballistic business to be resolved as well. Investors have known about these for some time now. It was these that put the AVON share price in reverse since last December. Naturally, ongoing concerns relating to new variants of Covid-19 haven’t boosted sentiment around the stock.

Aside from all this, the FTSE 250 constituent is still a leader in a niche market producing essential equipment. I think this sets it apart from another heavy faller today. In fact, I wonder if today’s dip might attract the attention of potential suitors. After all, we’re seeing a lot of consolidation in the defence sector right now. 

A tempting buy

Far from scaring me, today’s fall is actually tempting me to get involved again. Even so, I wouldn’t necessarily go ‘all in’ at this level. Since there’s still potential for things to get worse before they improve, I suspect it would be better for me to take a starter position today. After all, there’s always a chance guidance will be lowered again.

I need the outlook to become a little less foggy before thoroughly committing myself.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in Avon Protection. The Motley Fool UK has recommended Avon Protection. 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.

More on Investing Articles

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock's massive recent decline.

Read more »