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Austal shares crash over 30% from their peak. Is it time to buy?

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Navy ship sailing at dusk.

Austal Ltd (ASX: ASB) shares are down 3.45% in early morning trade on Friday. At the time of writing, the shares are changing hands at $5.88 a piece.

For the year to date, the shares have fallen 13.05% but they’re still 47.87% higher than what they were trading at this time last year. The shares spiked to an all-time high of $8.82 last month and have now crashed 32.65% to the current trading price.

What happened to Austal shares?

The Australian-based global shipbuilding company’s shares have enjoyed a bumper price increase this year as tailwinds push ASX defence sector stocks higher. 

Austal specialises in the design, construction, and support of defence and commercial vessels globally. Its products include naval vessels, defence surface-warfare combatants, high-speed support vessels, law-enforcement patrol boats, offshore vessels, and passenger and vehicle ferries.

The company won a couple of new contracts in December. The shipbuilder was awarded a contract extension worth more than $135 million to build two new Evolved Cape-class Patrol Boats for the Australian Border Force, bringing the total contracted to 14 vessels. It was also awarded a $1.029 billion design and construct contract to build 18 Landing Craft Medium (LCM) vessels for the Australian Army under the Commonwealth’s Strategic Shipbuilding Agreement.

In January, US President Donald Trump also said that the 2027 US defence budget should be US$1.5 trillion, well above the US$901 million so far approved. Other countries are also bolstering their defence spending.

There doesn’t appear to be any price-sensitive news out of the company to explain the latest sell-off. So the decline is most likely investors cashing in the strong gains earned over the past month or so.

Are Austal shares a buy, sell, or hold this year?

I think demand for defence companies will continue to climb this year as spending around the globe continues to rise. US tensions with Venezuela and Greenland could influence some more spending in the sector, while ongoing tensions in the Middle East are also likely to supercharge growth. Nations worldwide are prioritising military strength this year.

Analysts are optimistic about the outlook for Austal shares. TradingView data shows that two analysts have a strong buy rating and another two have a hold rating on the defence stock. The maximum target price is $8.10, which implies a potential 36.82% upside at the time of writing. 

The post Austal shares crash over 30% from their peak. Is it time to buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies 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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