The Block Inc (ASX: SQ2) share price has started the week deep in the red.

In morning trade, the payments giant’s shares are down 5.5% to $113.21.

Why is the Block share price tumbling?

The main catalyst for the weakness in the Block share price today has been a poor night of trade for its NYSE listed shares on Friday.

Given how Block’s Australian shares are inextricably tied to its NYSE shares and move in tow with them, a poor night on Wall Street will almost always lead to an equally poor day on the ASX boards.

So, with the US tech sector and Block taking a tumble on Friday night after the bear market rally ran out of steam, today’s decline was inevitable.

Not helping matters is news that the payments giant’s shares will soon be kicked out of the exclusive ASX 50 index.

On Friday, S&P Dow Jones Indices announced that Block would be removed on 20 June when the index rebalances. It will be replaced in the ASX 50 club by mining and mining services company Mineral Resources Limited (ASX: MIN) from that date.

Where next for the company’s shares?

While the market may not be too enamoured with the Block share price right now, one leading broker sees plenty of upside.

A recent note out of Macquarie reveals that its analysts have an outperform rating and $180.00 price target on the company’s shares.

Though, as mentioned above, whether the Block share price reaches that level will depend entirely on where its NYSE listed shares go over the next 12 months.

Shareholders will no doubt be hoping that investors on Wall Street become as bullish as those at Macquarie in the near future.

The post Why is the Block share price tanking 5% on Monday? appeared first on The Motley Fool Australia.

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• These are the 10 most shorted ASX shares
• 3 ASX 200 shares swimming in billions, besides banks and miners
• Why are ASX 200 tech shares having such a cracking Friday?
• Why is the Block share price tumbling 4% on Thursday?
• 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 positions in and has recommended Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Macquarie 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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The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price has fallen almost 10% since the end of April 2022.

ANZ shares started falling since the release of the FY22 first half result on May 4.

In that report, the company revealed that statutory net profit after tax (NPAT) rose by 10% to $3.53 billion.

However, profit before credit impairments and tax fell 7% to $4.16 billion. Profit before credit impairments, tax and notable items dropped 10%. In other words, the underlying performance of the business went backwards.

But, could things be about to turn around for the business?

Broker ratings on the ANZ share price

ANZ is rated as a buy by the broker Citi, with a price target of $30.75. That implies a possible 20% rise over the next year for the ANZ share price.

One of the reasons for the positivity is that a higher proportion of mortgages are variable loans, which should help the net interest margin (NIM).

On Citi’s numbers, the ANZ share price is valued at 12 times FY22’s estimated earnings and 11 times FY23’s estimated earnings.

Ord Minnett is another broker which rates it as a buy. The price target is $28.30, which implies a possible rise of 13%.

While the brokers have given price targets for the next 12-months, it’s impossible to know where a share price will go over the next week or month, let alone a year. Analysts are just giving a rating and a guess of where the ANZ share price will be sitting.

ANZ dividend yield

Some investors may be tempted by the dividend yield on offer from ANZ. It can play an important part in the total returns of the business. The franking credits may also be a welcome bonus for some investors focused on income.

But how large is the dividend going to be in the coming periods?

Citi has a dividend estimate which, at the current ANZ share price, equates to a grossed-up dividend yield of 8.4% in FY22 and 9.7% in FY23.

Ord Minnett also has a dividend estimate for ANZ. The FY22 grossed-up dividend yield is expected to be 8% and the FY23 grossed-up dividend yield is expected to be 8.7%.

ANZ share price snapshot

Since the beginning of 2022, the ANZ share price has fallen by just over 10%. It’s also down 13% over the past year and 9.7% over the last five years.

The post What’s the outlook for the ANZ share price in June? appeared first on The Motley Fool Australia.

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• Experts name the ASX 200 dividend shares to buy with big fully franked yields
• What’s dragging on ASX 200 bank shares like NAB on Thursday?
• May wasn’t kind to the ANZ share price. Here’s what happened
• ANZ share price largely unfazed by ASIC law suit
• The corporate cop is suing ANZ: share price on watch

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup 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 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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You may be curious as to why the WAM Capital Limited (ASX: WAM) share price is heading south today.

During early morning trade, the investment company’s shares are down 4.79% to $1.99.

Shareholders lock in the WAM interim dividend

While the S&P/ASX 200 Index (ASX: XJO) is also treading lower today, the WAM share price is trading ex-dividend.

This follows the release of the company’s half-year result in February, reporting growth across key financial metrics.

Despite registering a robust scorecard, the board opted to maintain its upcoming interim dividend 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 buys WAM shares after this date, the dividend will go to the seller.

When can shareholders expect to be paid?

For those eligible for WAM’s interim dividend, shareholders will receive a payment of 7.75 cents per share on 17 June. The dividend is fully franked at a corporate tax rate of 30%, which means investors will receive tax credits.

In addition, investors can elect for the dividend reinvestment plan (DRP) which will add a portion of shares to their portfolio instead, based on a 10-day volume-weighted average price.

There is a 2.5% DRP discount rate and the last election date for shareholders to opt in is 9 June.

WAM share price summary

Since the beginning of 2022, WAM shares have lost 10% on the back of weakened investor sentiment.

For context, the ASX 200 benchmark index is down around 3% over the same timeframe.

It’s worth noting that the company’s shares reached a 52-week low of $1.98 today.

Based on today’s price, WAM commands a market capitalisation of roughly $2.26 billion and has a trailing dividend yield of 7.67%.

The post Why is the WAM Capital share price sliding today? appeared first on The Motley Fool Australia.

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• WAM Capital’s ASX founder has been buying shares. Here’s what we know

Motley Fool contributor Aaron Teboneras 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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The Magellan Financial Group Ltd (ASX: MFG) share price is being pummelled by another round of bad news on Monday.

This morning, the company announced its funds under management (FUM) continued to fall in May. Meanwhile, the market’s also likely reacting to news Magellan has been dumped from the S&P/ASX 100 Index (ASX: XTO).

At the time of writing, the Magellan share price is $13.51. That’s 9.51% lower than Friday’s close and 36% lower than it was at the start of 2022.

Let’s take a closer look at what’s hammering the Magellan share price on Monday.

Magellan share price tumbles alongside FUM

The Magellan share price is taking yet another hit after the company announced its FUM tumbled 5.2% in May.

As of the end of last month, the funds management business was overseeing $65 billion. That’s $3.8 billion less than it was charged with at the end of April.

The company’s retail FUM fell 4.8% to $23.6 billion in May while its institutional FUM fell 5.4% to $41.4 billion.  

The global equities segment was the biggest weight on the company’s FUM – slipping $2.8 billion to $35.2 billion.

Meanwhile, Australian equities slumped around $800 million to $9.1 billion and infrastructure equities stayed flat at $20.7 billion.

Additionally, Magellan will soon be dumped from the ASX 100 in news that dropped after Friday’s market close.

The company’s removal comes after The Lottery Corporation Ltd (ASX: TLC) was spun out from Tabcorp Holdings Limited (ASX: TAH).

That likely means funds tracking the index will be forced to banish Magellan from their holdings from 20 June.

Its removal from one of the ASX’s most prestigious indexes follows a period of poor performance and drama at the company.

Magellan’s FUM have also been sliding for some time now.

The company was rocked by news St James’s Place – which previously accounted for around 12% of the company’s revenue – had abandoned its contract with Magellan in December.

Finally, Magellan co-founder and former chair and chief investment officer Hamish Douglass stepped down from the board following a period of scrutiny in March.

The post Why is the Magellan share price tumbling 10% on Monday? appeared first on The Motley Fool Australia.

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• What to do with these 3 pummelled ASX shares: advisor
• Can the Magellan share price stage a comeback in June?
• Free cash flow: Here are 3 ASX All Ords shares that have it in spades
• What’s going on with the Challenger share price today?
• Why is the Magellan share price marching higher today?

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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It has been a tough year for the Lifestyle Communities Limited (ASX: LIC) share price.

Since the start of 2022, this retirement communities company’s shares have lost a third of their value.

Is the weakness in the Lifestyle Communities share price a buying opportunity?

One leading broker appears to see the weakness in the Lifestyle Communities share price as a major buying opportunity.

According to a recent note out of Goldman Sachs, its analysts have a conviction buy rating and $24.65 price target on the company’s shares.

Based on the current Lifestyle Communities share price of $13.87, this implies potential upside of almost 80% for investors over the next 12 months.

Why is Goldman so bullish?

There are four key reasons why Goldman Sachs is bullish on Lifestyle Communities. These include structural drivers, the pace of its land acquisitions, first home buyer support, and the overall valuation of the Lifestyle Communities share price.

In respect to structural drivers, Goldman explained:

Continued ability to deliver supply against structural growth in demand for land lease: LIC is well-placed to provide supply to a growing cohort of over 50’s with limited savings outside the family home seeking to free up equity. In the near term, we see potential modest house price declines offset by LIC’s favourable pipeline and inventory position, coupled with a strong value proposition for incoming home owners, with the cost of an LIC home reaching <70% of the median house price in some areas (vs. ~c.80% typically), thus providing pricing support.

As for its valuation, the broker highlights the following:

[D]espite a rising rate environment (our GS Macro team forecasts peak-to-trough house price declines of 10% and a year-end policy rate of 2.60%) we continue to see valuation support for lower or maintained cap rates across the Australian land-lease sector, and would expect to see spreads decline.

LIC generates low-risk, annuity rental income. RLLCs (Residential Land Lease Communities) are becoming an institutional-grade property sub-sector, with increasing demand, particularly from offshore institutions/pension funds/corporates. At a business level, LIC trades on 25x FY23 P/AFFO vs. the median of peers at 23x, yet it offers a +32% 3-year AFFO CAGR (FY21-FY24E) vs. peers at only +11% CAGR.

The post Top broker tips Lifestyle Communities share price to rocket 80% higher appeared first on The Motley Fool Australia.

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• These were the best performers on the ASX 200 last week
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• 3 ASX All Ordinaries shares having a stellar run on Wednesday
• Why CSL, Dicker Data, Lifestyle Communities, and Money3 shares are rising 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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The PlaySide Studios Ltd (ASX: PLY) share price is in the spotlight this morning amid its latest announcement.

Shares in the Australian game developer are sparkling a little brighter today, leaping 11.11% shortly after open on Monday.

They have since retreated — at the time of writing, PlaySide Studios shares are up 6.94% at 77 cents. Shareholders are receiving the much-needed boost following the company’s work-for-hire extension with social media and virtual reality juggernaut Meta Platforms Inc (NASDAQ: FB).

What does it mean for the ASX-listed company?

More work with Meta is on the horizon

Investors are doing a double-take of PlaySide Studios today as it deepens its relationship with a US$500 billion tech giant.

An extended work-for-hire development agreement will see the Aussie game developer get another 16 months with the company formerly known as Facebook. The agreement likely quells any concerns that PlaySide had seen the last of Meta after signing a six-month extension more than eight months ago.

The previous work involved conceptualisation, creation, and development of prototype works for Meta’s Horizon Worlds. For those wondering, Horizon Worlds is a virtual world that is readily accessible using Meta’s Quest VR headsets.

PlaySide CEO Gerry Sakkas commented on the announcement:

Significantly extending and expanding our agreement with Meta further builds on our relationship with this global brand and leader in innovation and validates PlaySide’s ability to meet and exceed Meta’s expectations as well as generating significant additional opportunities and revenue for PlaySide.

In addition to the 16-month extension, PlaySide has also landed a separate six-month contract with Meta. According to the announcement, this agreement will see the Aussie developer work on a new VR initiative for Meta. The project has a fast turnaround, set for delivery in October 2022.

PlaySide Studios share price recap

It has been a difficult year so far for PlaySide shareholders. The small-cap company’s share price has been steadily chipped away, now 40% lower. However, we can see a more positive picture when zoomed out. One that shows the PlaySide Studios share price up an impressive 167% in the past year.

Although, the market might be looking over PlaySide with a sceptical lens due to the composition of its third-quarter revenue. While the company achieved a record quarterly revenue of $13.76 million (up 403%), around half of that stemmed from a one-off sale of non-fungible tokens (NFTs).

The post PlaySide share price jumps 11% after scoring Meta extension appeared first on The Motley Fool Australia.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Mitchell Lawler has positions in Meta Platforms, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms, Inc. The Motley Fool Australia has recommended Meta Platforms, Inc. 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.

Everyone can look smart in a bull market. We saw that in 2020 and 2021 — you could pick about any stock and make money. But now, it seems like every stock is falling, and the sun might never shine again. Don’t let the volatility of the market discourage you. 

The stock market has historically moved in cycles, up and down. This is likely yet another cycle of many. However, bear markets can have real implications for young companies, and growth stocks could face the financial stress of a recession.

No investor wants to buy a stock that falls dramatically and never recovers. If your growth stocks check these three boxes, they’re more likely to live to see another bull market. 

1. Revenue growth

Long-term investors should look to invest in companies that can thrive through good and bad times. Revenue growth is the most straightforward way to measure this. Now, that’s not to say revenue growth can’t slow in a recession — companies rarely grow for years without hiccups.

But a company must show that its business model is durable, that it’s not a fluke or temporary fad. Fitness equipment brand Peloton saw its growth explode upward during the height of COVID-19, but it has since imploded.

Data by YCharts.

Whether it’s a lousy business model or mismanagement by leadership (arguably both in Peloton’s case), execution must be consistent, or the business isn’t likely to thrive over time, let alone survive a recession.

2. Positive cash flow

So why do so many growth stocks fall during a bear market? It’s common for young and growing businesses to lose money. Companies can easily raise money when share prices are up in a bull market. They can sell stock at inflated valuations, which prevents investors from seeing their existing shares drop too much in value (dilution).

Suppose a company needs a million dollars and trades at $100 per share. It can raise that money by issuing 10,000 shares of new stock. But say the market crashes, and the stock price falls to $10. Now, the company must issue 100,000 shares to raise the same amount of money. That’s 10 times more shares, so existing shareholders experience greater dilution.

So what’s the solution? A company might be unprofitable for several reasons, and stock-based compensation, a non-cash expense, is one of them. Instead, look for companies generating free cash flow since cash profits go to the balance sheet.

A company burning a lot of cash (negative free cash flow) may need to raise money, and you don’t want that to happen when the share price is in the gutter or forcing the business to take on excessive debt.

3. Healthy balance sheet

Lastly, you want a company with a healthy balance sheet. For growth stocks, this means two things. First, you want to see as little debt as possible. There are times when companies borrow to fund an acquisition, or the business model requires debt like what Opendoor uses to buy housing inventory, but these are the exception and not the rule. 

You also want to see that there’s a healthy cash balance. A company could be so young it’s burning through money, but if it has substantial reserves from a recent IPO, that helps.

For example, cybersecurity company SentinelOne has burned through $105 million over the past year Meanwhile, the stock has fallen from a high of nearly $79 to $24 since its June 2021 IPO.

Data by YCharts.

You can see how it has almost $1.7 billion in cash. That’s enough money to operate the company for another four years based on its current cash burn rate, assuming the business doesn’t grow or get any closer to turning a profit.

You can’t know what the stock will do in the short term, especially during volatile markets. But you can see SentinelOne’s excellent balance sheet and know it’s doubtful the business is going anywhere, which lets you focus on what drives long-term returns like growth and business execution.

Wrapping up

Growth stocks that show resilience, generate cash profits, and have a strong balance sheet have all the building blocks to become great investments. Focusing on the things that matter instead of the things that don’t (like short-term price action) will put you in a position to do well as an investor. 

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

The post Your growth stocks better check these 3 boxes during a bear market appeared first on The Motley Fool Australia.

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• PlaySide share price jumps 11% after scoring Meta extension
• Here’s why I think the Brickworks share price is a top buy
• Will the Lovisa share price glitter in FY23?
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Justin Pope has positions in Opendoor Technologies Inc. and SentinelOne, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has has positions in and recommends Opendoor Technologies Inc. and Peloton Interactive. 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 Brickworks Limited (ASX: BKW) share price looks like a buy in my opinion.

There are a few elements to the Brickworks business. Certainly, its diversification is one of the things I like about the company. Brickworks is one of the largest building products manufacturers and suppliers in Australia, with operations in bricks, masonry, roofing, cement, precast, and so on.

The Brickworks share price has dropped close to 20% over the last two months. That alone makes it more attractive to me. But there’s more to like about the business than simply being cheaper.

These are some of the reasons why I like the business.

US opportunity

Brickworks is a leading brickmaker in the northeast of the US after a few acquisitions, including Glen-Gery.

The US is a large market for Brickworks to tap into. Glen-Gery has 27 company-owned distribution locations.

The company’s management is working on making the business as efficient as possible by closing some locations and upgrading others. For example, it has completed “extensive” upgrades at its Hanley plant in Pennsylvania, which is focused on premium architectural products. The company has upgraded its clay preparation area, the extruder, and the setting line to deliver “much improved manufacturing efficiency, product quality and a broader product range”.

While inflation and supply chain issues are hurting shorter-term profitability, the US division also reported a record order book, which was expected to lead to increased sales activity from April.

Investments division

As well, Brickworks owns a sizeable chunk (26.1%) of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

I think that the Soul Pattinson investment is very useful. It can provide diversification and consistency for Brickworks while its building products earnings can be cyclical. The Soul Pattinson shares form a sizeable part of the asset backing for the Brickworks share price.

Soul Pattinson owns a diversified portfolio across a number of sectors including resources, telecommunications, agriculture, financial services, swimming schools, and so on.

Brickworks is receiving a growing dividend from the investment house, which helps fund its own dividend.

Property division

This could be my favourite factor for liking the business at the current Brickworks share price.

Brickworks owns a 50% share of an industrial property trust in a joint venture with Goodman Group (ASX: GMG).

The ASX share said that industrial real estate valuations continue to increase in response to consumer trends such as online shopping. This spurs demand for large, strategically-located warehouses to run their operations.

The property trust is benefiting from completing a number of projections. In the FY22 first half result, the trust made a development profit of $115 million, primarily driven by completing the Amazon facility at Oakdale West.

As developments are completed, rental income continues to grow. Net trust income for the half was $17 million, up 7% year on year. This is helping fund the growing Brickworks dividend as well.

Brickworks dividend

At the current Brickworks share price, it has a grossed-up dividend yield of 4.5%. In this period of volatility, having dividends is a useful boost in my opinion.

The post Here’s why I think the Brickworks share price is a top buy appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Brickworks, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Amazon. 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 Lovisa Holdings Ltd (ASX: LOV) share price has dropped 27% in 2022. So could FY23 be a better year for the fast-fashion jewellery retailer?

It’s worth noting that despite the decline, Lovisa shares are still up by more than 300% over the past five years.

It seems ASX growth shares are on the nose in recent times with concerns about supply chains, inflation, and the prospect of rising interest rates.

However, with the Lovisa share price dropping but the company still displaying growth – is it an opportunity?

Growth and scalability

In the FY22 first half, Lovisa grew its revenue by 48.3%. Its earnings before interest and tax (EBIT) rose 59% and net profit after tax (NPAT) grew by 70.3%.

I think the result demonstrated that as Lovisa grows its revenue, it can benefit thanks to the operating leverage within the business. It has been focused on its cost of doing business (CODB) and efficiency while building the structure to support the company’s next stage of growth.

The sales growth momentum is continuing. Trading in the first eight weeks of the FY22 second half saw comparable sales growth of 12.1% year on year, with total sales growth of 61.7% on the same period in FY21. Lovisa said that the sales momentum had continued to the end of April 2022.

Its business model allows the business to generate gross profit margins of more than 75%.

Expansion plans

Lovisa said that it’s planning to keep expanding in its current markets. As at April 2022, it had added 59 new stores in FY22 to date.

The number of international stores is now 74% of its store network. It has added 38 new stores in the United States in the year to date. The US is a large opportunity for the ASX share and could be an important factor for the Lovisa share price.

The business is also focused on building its digital platforms globally as well as finding new markets to pilot the Lovisa brand.

I think that the business is in a good financial position to achieve this growth. Not only is it already generating good profit, but it has a strong balance sheet with no debt.

I believe that Asia and the US are particularly promising markets for the company to achieve long-term growth.

Valuation

The drop in the Lovisa share price makes it much more attractive to me, considering the sales and profit growth that it’s also achieving.

Using estimates from Macquarie, the Lovisa share price is now valued at 28 times FY22’s estimated earnings and 23 times FY23’s estimated earnings. If Lovisa can globally roll out an effective digital offering and keep growing its store network, I think it could be on track for an exciting future as it benefits from operating leverage.

As a bonus, it’s also giving investors a pleasing dividend. Macquarie thinks that the Lovisa grossed-up dividend yield could be almost 5% in FY23.

The post Will the Lovisa share price glitter in FY23? appeared first on The Motley Fool Australia.

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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 Lovisa Holdings Ltd and Macquarie 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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In morning trade, the Appen Ltd (ASX: APX) share price has come under pressure again.

At the time of writing, the artificial intelligence data services company’s shares are down 2.5% to $6.24.

Why is the Appen share price falling?

Investors have been selling down the Appen share price on Monday amid weakness in the tech sector and news that the company’s shares will be booted out of the ASX 200 index at the next rebalance.

In respect to the latter, Appen is one of five companies that S&P Dow Jones Indices will remove from the benchmark index when it rebalances on 20 June.

Also being kicked out are metal detector company Codan Limited (ASX: CDA), fund manager Platinum Asset Management Ltd (ASX: PTM), medical device company PolyNovo Ltd (ASX: PNV), and payments company Tyro Payments Ltd (ASX: TYR). All of these shares are tumbling lower today along with Appen.

They will be replaced with artificial intelligence technology hopeful Brainchip Holdings Ltd (ASX: BRN), lithium developers Core Lithium Ltd (ASX: CXO) and Lake Resources N.L. (ASX: LKE), and coal miner New Hope Corporation Limited (ASX: NHC).

As you might have noticed, that’s five exits and only four additions. That’s because the ASX 200 has been home to 201 shares since Tabcorp Holdings Limited (ASX: TAH) demerged its Lottery Corporation Ltd (ASX: TLC) business. Both will remain in the ASX 200 index.

Why is this bad news for the shares been kicked out?

When companies are removed from the ASX 200 index, it means that index funds that track the ASX 200 will have to sell their shares and buy the shares of those being added.

In addition, some fund managers have strict investment mandates allowing them to only buy shares from certain indices. That would mean they would soon have to offload these shares in order to abide by their mandates.

Combined, this can add significant pressure to the sell side. Particularly when buyers are already few and far between for some of the outgoing ASX 200 shares.

The post Appen and PolyNovo tumble after being kicked out of the ASX 200 along with these shares appeared first on The Motley Fool Australia.

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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. has positions in and has recommended Appen Ltd, POLYNOVO FPO, and Tyro Payments. The Motley Fool Australia has recommended Tyro Payments. 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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