What Happened to iiNet’s Share Price?
Shares in Telecommunications company iiNet [ASX:IIN] fell nearly 11% today. After years of outperforming the market, IiiNet has had a rough last few months. The share price peaked in December 2014 at around $8.50, but after today’s falls is now trading around $6.40. That’s a decline of nearly 25%.
Why Did This Happen to IIN Shares?
IIN released half-yearly profit results today, and the market was disappointed with the lack of growth. While subscriber growth for the period was good, net profits grew just 1%. It looks like the market is in the process of de-rating IIN from a growth stock to a more mature company. After all, it’s now challenging Optus to be the second largest internet services provider in Australia. At that size, your growth rate will naturally slow.
What Now for iiNET?
Due to strong subscriber growth, iiNet is now investing in the business to manage that growth, which means costs will probably increase at a higher than normal rate. There is nothing wrong with the business, but its growth trajectory will likely slow from now on. The market now realises this and the share price falls since last year are a reflection of that.
The recent falls mean the share price is now in a solid downtrend. While a short term share price bounce is possible, the odds are that the downtrend will continue for some time.
for The Daily Reckoning