Why iiNet’s Share Price Fell Today

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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.

Regards,

Greg Canavan+
for The Daily Reckoning

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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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