Day: October 20, 2021

Why A2 Milk, Eroad, Flight Centre, and Webjet shares are sinking

A man stands in front of a chart with an arrow going down and slaps his forehead in frustration.

The S&P/ASX 200 Index (ASX: XJO) is on course to record a decent gain. In afternoon trade, the benchmark index is up 0.25% to 7,433.3 points.

Four ASX shares that have failed to follow the market’s lead today are listed below. Here’s why they are sinking:

A2 Milk Company Ltd (ASX: A2M)

The A2 Milk share price is down almost 4% to $7.11. This follows reports that the embattled infant formula company will be hit with a second class action. In addition, this morning the team at Credit Suisse retained their underperform rating and $5.50 price target on the company’s shares. The broker believes the market is mispricing A2 Milk’s shares.

Eroad Ltd (ASX: ERD)

The Eroad share price has tumbled 8% to $4.85 following the release of the transportation technology services company’s quarterly update. That update reveals that Eroad has downgraded its standalone revenue growth guidance for FY 2022 to 10% to 13%. Management blamed this on challenging trading conditions, particularly in North America. In that segment, the company saw a reduction in contracted units.

Flight Centre Travel Group Ltd (ASX: FLT)

The Flight Centre share price has fallen 5.5% to $20.42. This decline appears to have been driven by the issue of convertible notes. This morning the travel agent confirmed that it has raised $400 million through a senior unsecured convertible notes offering maturing in 2028. Flight Centre intends to use the net proceeds to pay down existing debt and fund its growth vision into the future.

Webjet Limited (ASX: WEB)

The Webjet share price is down 3.5% to $6.27. This morning the team at Macquarie downgraded the online travel agent’s shares to a neutral rating with a $6.65 price target. The broker made the move on valuation grounds following recent share price strength.

The post Why A2 Milk, Eroad, Flight Centre, and Webjet shares are sinking appeared first on The Motley Fool Australia.

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When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended EROAD Limited. The Motley Fool Australia owns shares of and has recommended EROAD Limited and Webjet Ltd. The Motley Fool Australia has recommended A2 Milk and Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Webjet (ASX:WEB) share price is having a good month but it’s still 30% lower than pre-COVID levels

A woman wearing a facemask slumps on a couch next to a globe of the world, indicating COVID travel restrictions in play

The Webjet Limited (ASX: WEB) share price has been flying high recently.

Over the last month, shares in the online travel agency have rocketed 9.41% and are currently sitting at $6.51 as of the time of writing. Compared to the S&P/ASX 200 Index (ASX: XJO), which is only up 1.92% in the same period, it is an impressive feat.

Yet, the company is still not near its pre-COVID levels. On the first trading of 2020, Webjet shares ended the day at $9.49 – 45.8% higher than its current price.

Let’s take a closer look.

Webjet shares are high, but not as high as they once were

First, let’s take a look at what might have contributed to the rising Webjet share price over the last month.

When it comes to ASX travel shares, Webjet isn’t alone. Qantas Airways Limited’s (ASX: QAN) value has increased 4.18% over the month, Flight Centre Travel Group Ltd (ASX: FLT) shares are 16.2% higher, and the Helloworld Travel Ltd (ASX: HLO) share price is up an incredible 31.8% in that time.

ASX travel shares have been buoyed by recent developments about the pandemic. NSW Premier Dominic Perrottet announced he is ending all quarantine requirements for international travel come 1 November. This was swiftly followed by the Prime Minister, Scott Morrison, saying Australians would be able to leave and return to the country at will on the same date – effectively ending Australia’s closed international border.

Queensland, Victoria, and the ACT have all announced they would be effectively ending their closed border stances for fully vaccinated travellers as well.

Australia’s high vaccine uptake has moved forward the country’s plans for re-opening faster than most anticipated. It’s clearly been good news for the Webjet share price, and other ASX travel shares.

So, why isn’t the Webjet share price at pre-COVID levels yet?

Put simply, it’s because we aren’t in pre-COVID times anymore.

While Australians can come and go out of the country, this does not apply to international travellers. The Prime Minister, when he announced Australians could leave and enter the country when they wished, also made it abundantly clear that other nationals would not be extended the same privileges until sometime in the next year.

As well, only NSW and Queensland have made plans to end quarantine for international arrivals, Queensland saying they won’t end quarantine until 90% of those 16+ are fully vaccinated. Western Australia, Tasmania, and South Australia haven’t even indicated when they will open their domestic borders.

More generally, even with the opening of the borders, it is more onerous to travel than it once was. A person will need to test negative to the coronavirus before leaving and returning, wear masks on the plane, and prove they are fully vaccinated. Not every country has opened their border to Australia, such as Bali, for example.

This could explain why the Webjet share price isn’t at its pre-pandemic levels.

Another explanation is risk. The border hasn’t actually opened yet and won’t open for another 11 days. The future is more uncertain now than it was before the pandemic. Investors price risk into their decision making, and the risk may be too high for many buyers.

Webjet share price snapshot

Over the past 12 months, the Webjet share price has increased 56.8%. Year-to-date, shares in the company are up 22%. Webjet has a market capitalisation of approximately $2.4 billion.

The post The Webjet (ASX:WEB) share price is having a good month but it’s still 30% lower than pre-COVID levels appeared first on The Motley Fool Australia.

Should you invest $1,000 in Webjet right now?

Before you consider Webjet, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Webjet wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

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Motley Fool contributor Marc Sidarous owns shares of Qantas Airways Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Helloworld Limited. The Motley Fool Australia owns shares of and has recommended Helloworld Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Why is the Chalice Mining (ASX:CHN) share price struggling today?

an unhappy miner poses with gloved hand on face wearing a hard hat with a light and frowning.

The Chalice Mining Ltd (ASX: CHN) share price is nudging into the red during afternoon trade today.

After a nifty start, Chalice Mining shares cratered as the company released its quarterly activities report for the 3 months ended September 30, 2021.

At the time of writing, the Chalice MIning share price is down 0.72% to $6.85. It was at $6.96 when the company released the report just after midday before dropping sharply on the news.

Chalice Mining share price slides following quarterly updates

From the third quarter, Chalice outlined it had a cash balance of approximately $81.3 million. It also had a further $5.1 million in listed equity investments.

The company also disposed of its main holding in O3 Mining Inc this quarter, obtaining $4.6 million from the sale.

With regards to its 100%-owned Julimar Nickel-Copper-PGE project, all assays informing the mineral resource estimate (MRE) at the site have now been reported.

Investors can expect the ‘pit-constrained’ MRE to be released in Q4 FY21, the company says.

Chalice confirmed it is also proceeding with the previously announced demerger and potential ASX listing of what it calls its “highly prospective gold assets”.

These include the company’s Pyramid Hill, Viking, and Mt Jackson gold projects. These will all be spun off into a new ASX-listed entity known as Falcon Metals Ltd.

It is proposed to trade under the ticker “ASX: FAL”, should the ASX pass all resolutions and proposals under the demerger.

The company has appointed a suite of highly skilled personnel to Falcon’s board. They have “a proven track record in making major discoveries and delivering exceptional returns to shareholders”.

Aside from this, the company continues its drilling and survey programs at each of its other major projects. These include its Hawkstone nickel-copper-cobalt project and its Barrabarra and South West nickel-copper-PGE projects, all in WA.

What’s next for Chalice Mining?

Undoubtedly, the key upcoming catalyst for the company is the spin-out of its gold assets into the newly formed Falcon Metals.

In addition, the Julimar project is set to continue studies for an initial mining development at Gonneville on private farmland. This will continue defining the “full extent of the mineralisation along the (more than) 26km long Julimar Complex”.

Chalice has since commenced step-out drilling at the site. Geotechnical, metallurgical, hydrogeological, and infrastructure drilling will commence shortly, and continue until Q1 2022.

Aside from this, metallurgical test work and support studies are now focused on optimising disseminated sulphide performance and assessing mining scenarios for its Gonneville deposit.

The Chalice Mining share price has been an outsized winner this year to date. It has posted a return of 76% since January 1, and 117% in the past 12 months.

The post Why is the Chalice Mining (ASX:CHN) share price struggling today? appeared first on The Motley Fool Australia.

Should you invest $1,000 in Chalice Mining right now?

Before you consider Chalice Mining, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Chalice Mining wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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EV stocks may not be as infallible as you think

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Electric vehicle being charged.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market is giving incredibly high valuations to electric vehicle stocks, whether the companies have proven themselves effective manufacturers or not. Tesla (NASDAQ: TSLA) is one of the most valuable companies in the world, while start-ups like Lucid Motors (NASDAQ: LCID)NIO (NYSE: NIO), and Xpeng (NYSE: XPEV) are worth tens of billions of dollars with very little production, and a company like Rivian is eyeing a potential $80 billion valuation in an IPO. 

Meanwhile, older manufacturers like General Motors (NYSE: GM), Ford (NYSE: GM), Toyota (NYSE: TM), Honda (NYSE: HMC), and Volkswagen are trading for less than the market’s price-to-earnings ratio, as you can see below, indicating that investors don’t think highly of their earnings growth potential. Is this because EV companies are disrupting the old guard or because EV stocks are overvalued? Let’s take a look. 

GM Net Income (TTM) Chart

GM Net Income (TTM) data by YCharts

EV valuations versus the old auto industry

If you had invested in traditional auto stocks since the start of 2000, your performance would hardly be impressive. General Motors, Toyota, Honda, Ford, and Volkswagen have all underperformed the market, and you could buy all five manufacturers for less than $600 billion, based on today’s market capitalizations. Their valuations haven’t fallen relative to historical valuations as EVs have hit the market — automakers have always had relatively low valuations because of the boom-and-bust nature of the business. 

GM Market Cap Chart

GM Market Cap data by YCharts

Compare these valuations to five of the most valuable EV manufacturers today. 

TSLA Market Cap Chart

TSLA Market Cap data by YCharts

This chart doesn’t even include Rivian, which could go public with an $80 billion valuation, or Nikola, Workhorse Group, Canoo, Fisker, and a number of start-ups that are effectively pre-revenue. This is a very crowded field today. 

Tesla is relatively established as a manufacturer, but companies like Lucid are still in pre-production and many manufacturers are just starting to ramp up operations in a meaningful way. Clearly, the market thinks the economics of manufacturing EVs long term is going to be far better than the economics of the traditional auto industry over the last century. I think we should be skeptical of that. 

Why the auto business has traditionally been a terrible place to invest money

A good way to understand the strategic position of auto manufacturers is to consider Porter’s Five Forces for the industry. Porter’s Five Forces is a method for analysing a business’s competitive position developed by Michael Porter at Harvard University and is commonly taught in business schools today. 

I have laid out the five forces below and how I see the traditional auto fits into this analysis today, based on a low/medium/high level. You can adjust any of these factors if you disagree with my analysis. 

Porter’s Five Forces Ideal Traditional Auto Industry
Threat of new entrants Low Low
Supplier power Low Medium
Buyer’s bargaining power Low High
Threat of substitutes Low High
Intensity of rivalry Low High

Data sources: Michael Porter, author’s analysis. 

The threat of new entrants to the auto business is low and has been for decades, given the high cost to design vehicles and build manufacturing capacity. Suppliers have some power in the market because many are large and have significant scale, but there’s a limit to their power. Buyers do have bargaining power because they can simply go to any other automaker for a vehicle. The threat of substituting one brand for another is also high. And given relatively low margins for automakers and the money spent on advertising vehicles, we know that rivalry among competitors is high.

The same forces don’t hold for the EV industry today, where economics will likely be far better for the next few years for some very critical reasons. 

EV financials may never be better than they are today

Looking at the same five forces for the EV industry, we see a much more attractive environment. 

Porter’s Five Forces Ideal EV Industry
Threat of new entrants Low Medium
Supplier power Low Medium
Buyer’s bargaining power Low Low
Threat of substitutes Low Low
Intensity of rivalry Low Low

Data sources: Michael Porter, author’s analysis. 

There’s a bigger potential threat of new entrants today than there was in the traditional auto industry, partially because many of these new entrants are public and can raise capital from equity markets relatively easily. But it’s still extremely difficult to establish an auto company today — so I only made that a medium threat level. But it’s also clear that the intensity of rivalry among EV manufacturers is nearly nonexistent, there are very few substitutable options for customers given a limited number of models available, and buyers have little bargaining power because there are so few options. 

To add to the improved position of EV companies today, they’re getting a financial windfall from government regulations and tax incentives, and benefiting from disrupting a slow-moving legacy business. 

  • EVs have a tax credit windfall for buyers in the U.S. 
  • EV manufacturers are getting a regulatory credit windfall
  • There is limited competition from any EV manufacturer
  • EV start-ups are competing against a legacy cost structure (dealerships and unions) 
  • EV companies like Tesla are starting to charge a premium for technology like self-driving features

What I see from both the Porter’s Five Forces analysis above and the five bullet points is there are tailwinds behind EV companies today. But in every single case, I think the tailwind has an end date. 

  • Eventually, all automakers will make enough EVs to render regulatory credits negligible
  • Tax credits will (likely) expire
  • Competition from start-ups and legacy companies is launching regularly, and eventually there will be ample supply of EVs for anyone who wants one
  • Most new start-ups are not using a traditional dealer model, reducing the benefit of any single company (Tesla) disrupting the dealer model
  • Premium features like self-driving are a novelty today, but they’ll eventually be standard and — depending on how autonomous driving technology and business models develop — may make the idea of purchasing a vehicle in the first place obsolete

Add all of this up and I think we will see an increased level of rivalry, a bigger threat of substitutes from one EV to the next, and more bargaining power from buyers. Long term, Porter’s Five Forces and the strategic position of EV manufacturers resemble that of auto companies over the last 50 years. In all likelihood, EV manufacturers will face the same rise and fall of demand during recessions and ultimately pricing pressure that will hurt margins. Some of that threat will come from traditional auto companies themselves, but some competition will be EV-maker versus EV-maker in the marketplace. 

Are EV manufacturers playing a new game? 

When I consider EV companies over the long term, they look a lot like traditional automakers. They are manufacturers just like traditional automakers and some haven’t even proven the ability to be world-class manufacturers. They need to grow, develop technology, market products, hold off competitors, and at the end of the day hope they can make enough money on vehicle sales to cover enormous fixed costs associated with operating an auto company.

EV companies will face the same challenges in the future that traditional auto companies have been facing for a century — which makes me wonder why EV companies are so highly valued compared to how traditional auto companies have been valued for decades? 

Add it up and this looks like EV stocks are much more fallible than investors think right now, which makes me very hesitant about investing in this space at all. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post EV stocks may not be as infallible as you think appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

More reading

Travis Hoium owns shares of General Motors and has the following options: long March 2023 $250 puts on Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended NIO Inc. and Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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