Day: 16 May 2022

The Australian Strategic Materials Ltd (ASX: ASM) share price is off to the races today.

Shares in the ASX rare earths and critical metals miner closed on Thursday at $5.26 per share. The company entered a trading halt on Friday at its own request pending today’s equity funding announcement.

In morning trade, the Australian Strategic Materials share price stands at $6.87, up 30.7%.

What’s piquing ASX investor interest today?

Investors are bidding up Australian Strategic Materials shares following a US$15 million (AU$10.4 million) funding announcement.

According to the release, Korean company KCF Energy will invest US$15 million of equity funding via a share purchase at an issue price of AU$8.90 per share.

Notably, that’s 69% higher than what the Australian Strategic Materials share price closed for on its last day of trading

The parties are also revising their July 2021 Framework Agreement, reporting that negotiations are ongoing for a five-year offtake agreement for 2,800 dry metric tonnes of NdFeB alloy from the Korean Metals Plant.

One of the core negotiations in the Revised Framework Agreement is for KCM to facilitate the acquisition of 10% of Australian Strategic Materials (Holdings) shares for US$125 million by a “strategic investor”.

The parties are also negotiating another US$105 million equity investment by KCM, which would be subject to Australian Strategic Materials shareholder approval.

Commenting on new investment, Australian Strategic Materials managing director, David Woodall said:

We welcome this investment in ASM from our Korean partners as we continue discussions and agree on terms to progress our Dubbo Project and importantly ASM’s mine-to-metals strategy…

We are pleased to maintain our close relationship with Korea and our partners, who are highly supportive of ASM’s mine-to-metals strategy. These partners wish to secure their supplies of the metals needed to drive Korea’s manufacturing industry.

Separately, the critical metals miner released its investor presentation today.

Australian Strategic Materials share price snapshot

Today’s big boost in the Australian Strategic Materials share price comes after a difficult few months for the critical metals miner.

To give you some idea, shares are up 59% over the past 12 months but are down 40% in 2022.

By comparison, the All Ordinaries Index (ASX: XAO) is up 2% over the 12 months and down 7% year-to-date.

The post Here’s why the Australian Strategic Materials share price is surging 31% today appeared first on The Motley Fool Australia.

More reading

• Why is the Australian Strategic Materials share price frozen today?

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 Scott Phillips.

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The Brambles Limited (ASX: BXB) share price is surging higher on news the company is in takeover talks.

The pallets, crates, and containers manufacturer has caught the eye of global private equity giant CVC Capital Partners.

At the time of writing, the Brambles share price is $11.58, 11.03% higher than its previous close.

Though, that’s down from its earlier high of $11.82, representing a 13.3% increase.

Let’s take a closer look at the rumours the company confirmed this morning.

Brambles share price surges on confirmed takeover talks

The Brambles share price is taking off after the company responded to reports CVC Capital could be gearing up to present an offer valuing it at more than $20 billion.

While the S&P/ASX 200 Index (ASX: XJO) constituent didn’t note the value of any potential bid, it did confirm it was in talks with CVC this morning.

Those talks are in early stages and there’s no guarantee they’ll lead to an acquisition offer, the company said.

Any potential bid would presumably aim to entice Brambles to open its books to the firm. And CVC is reportedly not holding back.

The private equities giant is considering slapping an offer valuing the company at around $20 billion on the table, The Australian reported last night.

At its previous close, Brambles boasted a market capitalisation of around $15 billion.  

However, the company doesn’t seem to be placing all its bets on such an offer.

“The board and management remain focused on implementing the Shaping our Future transformation plan,” the company said in today’s release.

“The board is also considering other strategic options for the company that maximise shareholder value.”

Today’s gains included, the Brambles share price is 8% higher than it was at the start of 2022. It has also gained 9% since this time last year.

The post Here’s why the Brambles share price is rocketing 11% on Monday appeared first on The Motley Fool Australia.

More reading

• Brambles share price on watch as takeover talks confirmed
• Broker names 3 more ‘champion’ ASX 200 shares to buy and hold
• These were the best performing ASX 200 shares last week
• Here are the top 10 ASX shares today
• Why Betmakers, Brambles, Challenger, and Stockland shares are charging higher

Motley Fool contributor Brooke Cooper has no position 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 Scott Phillips.

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These ASX shares could be ideas to consider because of their growth plans and the dividends they are paying to investors.

Many businesses can be put into the ‘growth’ basket or the ‘dividend’ basket. It can be rare to find a business that ticks both boxes.

But, these two could fit the bill and give investors exposure to both:

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is a retailer of baby and infant products such as prams, toys, clothes, and furniture.

First, let’s look at the dividend potential. In the recent FY22 half-year result, the ASX share grew the interim dividend by 13.8% to 6.6 cents per share. That brings the trailing grossed-up dividend yield to 5%.

The company has been delivering growth. HY22 sales were up 10% to $239.1 million, with online sales rising by 23.8% (representing 19.7% of total sales). Baby Bunting revealed that its gross profit margin improved 192 basis points to 39.3%, helping statutory net profit after tax (NPAT) rise by 12.2% to $8.1 million.

Baby Bunting is looking to grow profit in a number of ways – growing its store network, expanding in New Zealand, selling more private label and exclusive products (with higher gross margins), being more efficient, and growing its e-commerce capabilities to drive online sales.

The company is going to assess the broader $5.1 billion baby goods market for future growth opportunities, relative to the company’s current $2.5 billion addressable market.

Propel Funeral Partners Ltd (ASX: PFP)

Propel describes itself as the second-largest private provider of death care services in Australia and New Zealand. It has 145 locations, including 32 cremation facilities and nine cemeteries.

The company points to long-term tailwinds for its business, as morbid as that may be. It says that the number of deaths is the most significant driver of revenue in the death care industry.

Death volumes in Australia are expected to rise by 2.9% per annum from 2020 to 2031 and 2% from 2031 to 2050. In New Zealand, death volumes are expected to rise by 2.2% per annum from 2021 to 2032 and 1.8% from 2032 to 2050.

Not only is the number of funerals projected to increase, but the ASX share is also achieving growth of its average revenue per funeral. In the FY22 half-year result, the average revenue per funeral of $5,902 was up 0.5% year on year and up 2.5% on the pre-COVID-19 period.

The ASX share continues to make acquisitions to boost its market share in Australia and New Zealand. In the 2020 calendar year, its market share had grown to around 7%. It is continuing to explore other potential acquisitions.

In January 2022, total funeral volumes were “materially higher” than January 2021. A higher mix of full-service funerals contributed to material growth in average revenue per funeral.

In terms of the bottom line in HY22, Propel’s operating earnings per share (EPS) rose 23.1% to 7.3 cents. The board declared an interim dividend of 6 cents. That means the grossed-up dividend yield is currently 3.6%.

The post 2 ASX shares that could be buys for both growth and dividends appeared first on The Motley Fool Australia.

More reading

• Analysts name 2 ASX shares to buy with ~50% upside potential
• Are these 2 top ASX growth shares buys right now?
• Here are 2 top ASX dividend shares analysts are tipping as buys

Motley Fool contributor Tristan Harrison has no position 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 recommended Baby Bunting and Propel Funeral Partners Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Core Lithium Ltd (ASX: CXO) share price has started the week strongly.

In morning trade, the lithium developer’s shares are up 7% to $1.22.

This means that the company’s shares are now up approximately 90% since the start of the year.

Why is the Core Lithium share price storming higher?

Investors have been bidding the Core Lithium share price higher today despite there being no news out of the lithium developer.

Today’s gain is likely to have been driven by investors returning to risk assets on Monday following a strong showing on Wall Street on Friday and news that China’s lockdowns are easing slightly.

Core Lithium isn’t the only lithium share rising today. The likes of Lake Resources (ASX: LKE), Pilbara Minerals Ltd (ASX: PLS), and Sayona Mining Ltd (ASX: SYA) are also rising materially at the time of writing.

This mirrors strong gains by lithium giants Albemarle, Sociedad Quimica y Minera de Chile (SQM), and Livent Corp on Friday night. Their US listed shares were up 7%, 9.5%, and 12.5%, respectively during the session.

Time will tell how long this positive sentiment lasts this time around. But lithium investors will no doubt be hoping it is here to stay.

The post Why is the Core Lithium share price charging 7% higher? appeared first on The Motley Fool Australia.

More reading

• Core Lithium share price dips despite ‘exciting results’
• Why is the Novonix share price down 6% on Friday?
• Why is the Core Lithium share price tracing 6% lower on Friday?
• Investing in ASX lithium shares? Here’s what you need to know
• Here are the top 10 ASX shares today

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. 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 Scott Phillips.

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

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

There’s no way to sugarcoat things. The past few months have been absolutely awful for investors. The S&P 500 Index has plunged a gut-wrenching 18% so far this year. Multitudes of stocks have plummeted even further from their peak. There’s no end in sight to the selling, given all the headwinds currently facing the global economy. 

Difficult periods like this can make even the most seasoned investors want to throw in the towel and liquidate their portfolios. However, I’d like to encourage you to press through this challenging period. I want to share my investing story and some data to give you some hope that this, too, shall pass.

I learned to invest the hard way

I was only a few years into my investing journey when the Financial Crisis upended the global economy and stock market. Before that event, my experience with stocks was that they went up. That had my confidence swelling to the point of overconfidence.

So I made some really reckless investment decisions as stocks started to crash. I’m lucky that I didn’t completely wreck my portfolio. I started buying stocks just because their price went down a lot. I focused on the stock price and not the underlying business. One of the most foolish (and I mean really small “f” foolish) moves was to buy call options on investment bank Lehman Brothers on the firm belief that the government would bail them out. Suffice it to say; I lost a lot of money on that gamble.

As my portfolio dove deeper into the red, accelerated by my ill-timed shift from an investor to a trader, I got to the point in early 2009 where I had to take a break from investing. However, instead of liquidating what remained of my portfolio, I just stopped making changes. I took a month off from buying and selling stocks and reset my strategy.

I learned a few important lessons during this challenging time:

1. Forget about the stock price; focus on the business: I stopped buying stocks because they had low price tags and focused on investing in companies that I believed could thrive over the long term.
2. Credit is crucial: I started putting more emphasis on a company’s balance sheet, focusing on those with investment-grade credit ratings because that gave them more financial flexibility to survive tough times so that they could thrive in the eventual recovery.
3. Cash flow is king: This lesson goes hand in hand with having a strong balance sheet. Cash flow gives companies the funds to expand when credit is unavailable.

As tempting as it was to throw in the towel on investing in 2009, I’m so glad I didn’t. That challenging period made me a better investor, and my portfolio’s value has grown by leaps and bounds over the more than a decade since the Financial Crisis. While, like most investors, the value has fallen quite a bit from the peak of late, I sleep well at night knowing that, for the most part, I own a portfolio filled with several high-quality companies with strong balance sheets and cash flows that will weather this storm and thrive on the other side.

These numbers urge you not to give up

I want to pivot from my story to share an eye-opening chart I recently came across that shows the power of persevering as an investor. When stocks are in freefall, it can make an investor think about liquidating to avoid further damage. However, historically some of the market’s best days have come during these periods. Investors who give up on the market could see their returns suffer.

Decade	Price return of the S&P 500	Return excluding the 10 best days per decade
1930s	(42%)	(79%)
1940s	35%	(14%)
1950s	257%	167%
1960s	54%	14%
1970s	17%	(20%)
1980s	227%	108%
1990s	316%	186%
2000s	(24%)	(62%)
2010s	190%	95%
2020s	18%	(33%)
Since 1930	17,715%	28%

Data source: CNBC and Bank of America. 

The middle column shows the total return earned by investors over decades. Over the long term, investors who kept their money in the market earned a staggering return, despite enduring their share of bear markets. However, if an investor liquidated their portfolio and went to cash, they ran the risk of missing out on some of its best days. They’d earn much lower returns if they were on the sidelines during the 10 best days each decade.

Stay the course

These are definitely challenging days to be an investor. However, please don’t give up because they should eventually pass. Instead, use this time to reevaluate your investment strategy so that your portfolio can thrive again when the market eventually recovers.

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

The post Investing can be brutal at times, but don’t give up now appeared first on The Motley Fool Australia.

More reading

• Why is the Core Lithium share price charging 7% higher?
• Is the Bitcoin price heading all the way back down to US$20,000?
• What’s with the Dicker Data share price today?
• Infomedia share price rockets 30% following takeover approach
• Buy these 2 ASX shares on sale right now: top broker

Matthew DiLallo has no position in any of the stocks mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. 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 Scott Phillips.

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

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The Bitcoin (CRYPTO: BTC) price has enjoyed a bit of a rebound over the past few hours, putting the world’s original crypto up 4% since this time yesterday.

At the time of writing, one Bitcoin is worth US$31,249 (AU$44,872). That leaves the token down 8% over the past seven days and down 35% year to date.

Could the Bitcoin price retrace back to US$20,000?

You have to go back to November 2020 to find Bitcoin trading at US$20,000.

But according to crypto analysts Brian Cubellis and David Duong from Coinbase Institutional, the world’s leading digital token could fall back to those levels.

Commenting on the market sell-off following the meltdown of TerraUSD (CRYPTO: UST) and the token meant to keep UST pegged to the US dollar, Terra (CRYPTO: LUNA), they said (quoted by Bloomberg last week), “Multiple headwinds have given market players almost nowhere to hide in any asset class”.

Although the Bitcoin price edged above US$30,000 over the past hours, it still traded as low as US$29,573 overnight. And that, according to Cubellis and Duong, is cause for concern.

The analysts said that US$30,000 is “a major resistance”, as prices have continued to struggle to move and hold higher from there.

“If things were to deteriorate further the next line of support would come at around US$20,000, which was the all-time high in the previous 2017/2018 cycle,” they said.

The Bitcoin prices hit a low point of US$26,350 on Thursday, according to data from CoinMarketCap.

Crypto bulls keep an eye on the long game

Plenty of crypto investors will have lost money last week, with some US$270 billion estimated to have been wiped from the total crypto market valuation.

But crypto enthusiasts like Vasja Zupan, president of cryptocurrency exchange Matrix, are keeping their eye on the horizon and remain optimistic on the long-term outlook for the Bitcoin price.

According to Zupan (quoted by Bloomberg), “I remain long term bullish, especially on Bitcoin. But I do foresee high volatility for some time followed by a period of much lower volumes at lower prices before we can expect trending to new all-time highs.”

The post Is the Bitcoin price heading all the way back down to US$20,000? appeared first on The Motley Fool Australia.

More reading

• How is the Bitcoin ETF (EBTC) performing compared to the ASX on Friday?
• Could the next crypto collapse flow through to ASX shares?
• Crypto crash: Why Bitcoin, Ethereum, and Dogecoin are struggling again
• Is this the start of a long crypto winter?
• How are Australia’s Ethereum and Bitcoin ETFs faring on their first day?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Dicker Data Ltd (ASX: DDR) share price is roller coasting between red and green on Monday morning.

Shares in the hardware, software and cloud distributor lifted to $12.68 before plummeting to a low of $12.33 — all in the first hour of trading today. At the time of writing, the Dicker Date share price has retraced and is now trading up 0.24% at $12.50.

This comes despite the S&P/ASX 200 Index lifting 0.78% to 7,130 points in early trading following strong Wall Street gains on Friday.

Let’s see what might be driving the Dicker Data share price today.

Shareholders lock in the Dicker Data dividend

With the first three months wrapped up for Dicker Data, investors are selling the company’s shares as they trade ex-dividend.

The IT distributor released its first-quarter market update for FY22 last Wednesday, reporting strong growth across key financial metrics.

As a result, the board elected to increase its upcoming interim dividend by 44% over the prior corresponding period.

Typically, one business day before the record date, the ex-dividend date, is when investors must have purchased shares. If the investor does not buy Dicker Data shares before this date, the dividend will go to the seller.

When can shareholders expect to be paid?

For those eligible for Dicker Data’s interim dividend, shareholders will receive a payment of 13 cents per share on 1 June. The dividend is fully franked at a corporate tax rate of 30%, which means investors will receive tax credits from this.

In addition, investors can elect the company’s dividend reinvestment plan (DRP) which will add a portion of shares to their portfolio instead. This will be based on a 10-day volume-weighted average price from 4 May to 17 May.

There is no DRP discount rate and the last election date for shareholders to opt in is on 18 May.

Under the company’s dividend policy, 100% of after-tax profits will be paid out through equal quarterly dividends.

This brings the total proposed dividends to be paid in FY22 to 54 cents per share, up 44% from FY21.

Dicker Data share price summary

Dicker Data shares are down 15% in 2022, alongside lost confidence from investors in the S&P/ASX All Technology Index (ASX: XTX).

By comparison, the benchmark for Australian technology-orientated companies is down a massive 29% over the same timeframe.

Dicker Data shares touched a year to date low of $11.60 last Tuesday, before sharply rebounding in the following days.

Based on today’s price, Dicker Data commands a market capitalisation of roughly $2.16 billion and has a trailing dividend yield of 3.33%.

The post What’s with the Dicker Data share price today? appeared first on The Motley Fool Australia.

More reading

• Everything you need to know about the latest Dicker Data dividend
• Why CSL, Dicker Data, Lifestyle Communities, and Money3 shares are rising today
• Dicker Data share price charges higher following stellar Q1 growth
• Here’s why ASX 200 tech shares are having such a disastrous run on Friday

Motley Fool contributor Aaron Teboneras has positions in Dicker Data Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Dicker Data Limited. The Motley Fool Australia has positions in and has recommended Dicker Data Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Infomedia Limited (ASX: IFM) share price has returned from a trading halt and is shooting higher.

In morning trade, the automotive software company’s shares are up over 30% to $1.67.

Why is the Infomedia share price shooting higher?

The catalyst for the rise in the Infomedia share price on Monday has been the receipt of a takeover approach.

As we mentioned here last week, the company requested a trading halt on Friday following the receipt of a change of control proposal. This coincided with a separate announcement that revealed that the TA Consortium had become a new substantial shareholder with a 14.5% stake.

This morning, Infomedia confirmed that the TA Consortium, which comprises Boston-based private equity firm TA Associates and Australian Viburnum Funds, is the party that has made the takeover approach.

According to the release, the consortium has made a conditional, non-binding, indicative proposal to acquire 100% of Infomedia via a scheme of arrangement for a price of $1.70 cash per share.

This represents a 32.8% premium to the Infomedia share price prior to its trading halt. Though, this offer will be reduced accordingly if any dividends are paid.

What now?

The Infomedia Board has not yet made a decision on the offer. It will now commence an assessment of the proposal to see if it is in the best interests of non-affiliated Infomedia shareholders.

It also revealed that there are other interested parties and is in preliminary discussions with them. Infomedia shareholders will no doubt be hoping this leads to a bidding war commencing in the coming days or weeks to drive the takeover price even higher.

In the meantime, Infomedia has told shareholders that they do not need to take any action in response to the proposal. It also warned that there is no certainty that the proposal nor other discussions will result in a transaction.

The post Infomedia share price rockets 30% following takeover approach appeared first on The Motley Fool Australia.

More reading

• Infomedia share price halted amid takeover approach

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. has positions in and has recommended Infomedia. The Motley Fool Australia has recommended Infomedia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A leading broker has identified two ASX shares that have international growth potential and, he believes, look like good investment opportunities.

On top of that, the below two ASX shares have fallen heavily recently amid general market volatility.

The broker has suggested there’s plenty of potential longer-term upside with these two ideas:

REA Group Limited (ASX: REA)

REA Group describes itself as a multinational digital advertising business that specialises in property. Two of its key assets are leading residential and commercial property websites, realestate.com.au and realcommercial.com.au.

It also has other assets including mortgage brokers Home Loans and Mortgage Choice, as well as investments in international property sites in India, China, the US, Malaysia, Singapore, Thailand, and Vietnam.

How much cheaper is the company? At the time of writing, the REA Group share price has dropped by 34% in 2022.

The broker Ord Minett currently rates the company as a buy with a price target of $153, implying a possible rise of more than 30% over the next year.

The broker pointed out that the FY22 third quarter wasn’t quite as good as expected, but the company’s profit margins are improving.

For readers who didn’t see that quarterly update, for the three months to 31 March 2022, revenue rose 23% to $278 million and operating earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 29% to $156 million. Free cash flow jumped 39% to $91 million. These numbers came after a 11% rise in national listings.

The ASX share is expecting slower growth in the fourth quarter of FY22. April national residential listings were down 8% year on year.

Reece Ltd (ASX: REH)

This business has been operating for more than 100 years. It distributes plumbing, waterworks, and HVAC-R (heating, ventilation, air conditioning, and refrigeration products) in Australia, New Zealand, and the US.

It’s currently rated as a buy by the broker Ord Minnett, with a price target of $23. That implies a possible rise of more than 30%. The broker thought the performance in the US in the first half of FY22 was good.

In that result, revenue increased 17% to $3.6 billion, earnings before interest and tax (EBIT) went up 16% to $275 million, and net profit after tax (NPAT) grew by 28% to $157 million.

The company’s Australia-New Zealand (ANZ) segment saw revenue rise by 11% to $1.7 billion and EBIT increased 6% to $186 million. Meanwhile, US revenue rose 24% to $1.87 billion and EBIT jumped 44% to $89 million.

The ASX share is looking to capture more market share in the US by investing for growth. It’s putting money towards its store rollout and its upgrade program is progressing. Its online offering has been relaunched and the Reece corporate brand rollout has also commenced. Its improvement program is also progressing. The company says it has introduced “key” automation processes and operational upgrades.

Reece is using its learnings from the ANZ market to make progress in the US. The company said it was optimistic about the demand drivers in the second half of FY22 despite a “number of risks” that it said will require “careful management”.

How much cheaper is the company? Since the start of 2022, the Reece share price has dropped around 41%.

The post Buy these 2 ASX shares on sale right now: top broker appeared first on The Motley Fool Australia.

More reading

• Thursday thrashing: ASX tech shares tumble
• Here are the top 10 ASX shares today
• Leading brokers name 3 ASX shares to buy today
• Following months of selling, top broker tips 45% upside for the REA share price
• 5 things to watch on the ASX 200 on Monday

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position 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 recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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

The recent volatility in the stock market has sent the Nasdaq 100 technology index into bear market territory with a year-to-date loss of 24%, but that pales compared to the wild swings in cryptocurrency markets in 2022 so far.

Crypto-market leader Bitcoin (CRYPTO: BTC) is nursing a 37% loss since Jan. 1, and high-flying meme-token Shiba Inu (CRYPTO: SHIB) is down 62% in the same period. Shiba Inu was the star of 2021, delivering a full-year gain of 43,800,000% — in other words, it made millionaires out of investors who put in as little as $2.29 on Jan. 1, 2021, and sold on Dec. 31. 

Overall, Shiba Inu has lost 85% since hitting its all-time high of $0.000088. It trades at just $0.000013, and there’s no telling where the bottom could be. But the token might have one saving grace that could propel it back to its highs (and beyond). 

There’s no shortage of difficulties

Shiba Inu faces plenty of challenges, both internal and external. Like many cryptocurrencies, the token has failed to garner the adoption it needs to support a higher price. At the moment, only 659 merchants accept Shiba Inu as payment for goods and services, and they’re mostly small online businesses. It offers little incentive to consumers to own the token because they simply can’t spend it conveniently, which leaves speculation as its primary use.

Wild price swings could be one reason businesses avoid Shiba Inu as a payment method. A currency that swings in price by millions of percentage points in a short period of time could quickly erode a merchant’s profit from selling products, and it makes cash flow forecasting really difficult.

Additionally, a wave of regulation could be headed for the entire crypto industry, starting with requirements for exchanges to report their clients’ trading activity to the Internal Revenue Service for tax purposes. This would lift the veil of anonymity and erode some of the decentralized features that initially attracted many investors to crypto markets. Investors who remain committed to cryptocurrencies will likely favor the leaders like Bitcoin in this scenario, with speculative bets like Shiba Inu discarded more willingly. 

Finally, Shiba Inu has a major supply problem. With 589 trillion tokens in circulation, it makes lofty price targets like $1 (or more) mostly a dream. But there is one catalyst that could change all of that.

Feel the burn

Tackling Shiba Inu’s supply challenge has been a point of focus for the token’s community. Collectively, at the current price of $0.000013, the value of all Shiba Inu tokens in supply stands at $7.1 billion. 

Theoretically, if the 589-trillion supply figure was cut in half, the price per token would have to double to maintain a market capitalization of $7.1 billion.

Therefore, finding a way to remove Shiba Inu tokens from supply could result in an organic increase in price, reversing some of the heavy losses from the last few months. One way developers propose to do this is through a Shiba Inu-themed metaverse called SHIB: The Metaverse. It will contain 100,595 virtual land plots in addition to serving as a virtual meeting place for the community, hosting games and non-fungible tokens (NFTs). 

Investors who want to buy virtual land in SHIB: The Metaverse will have to use Ethereum (CRYPTO: ETH), but there will be a unique role for Shiba Inu tokens to play. Landowners will have the ability to rename their plots by paying a fee using Shiba Inu, and upon doing so, those tokens will be burned (removed from the supply) forever. 

It might work, but not in the way you expect

Reducing the supply of Shiba Inu will theoretically boost its price. In fact, it could do so by a significant amount depending on how many tokens are burned. If supply is reduced by 90% from 589 trillion tokens to 58.9 trillion tokens, for example, Shiba Inu’s price could soar 10-fold from $0.000013 to $0.00013, surpassing its previous all-time high.

But there’s a catch. For this to work, basically every investor in Shiba Inu would need to shrink their holdings by 90%, although the value of their tokens would effectively remain exactly the same. Their tokens might be worth 10 times more, but they would only own one-10th as many tokens. 

Reducing the supply of Shiba Inu could be described as financial engineering. It doesn’t actually make the token worth any more than it already is. To truly boost its value, it would have to actually offer some utility as a payment mechanism or find a way to attract more investors. 

But for those looking for a cosmetic lift in Shiba Inu’s price, burning tokens is certainly a viable option. 

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

The post Shiba Inu is down 85%, but here’s how it could recover appeared first on The Motley Fool Australia.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia owns and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

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

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