Just five days ago Treasury Wine Estate Limited [ASX:TWE] had a market cap of over $12 billion.
Today, it’s sitting at $8.89 billion. A decline of around 26%.
Yes, 26%. And that’s for a company sitting in the ASX top 100.
So what went wrong, and should you be buying?
Today, we’ll take a look.
Let’s get to it…
Who is Treasury Wine Estate Limited [ASX:TWE]
Treasury Wine Estate Limited [ASX:TWE] produce and market wine.
They operate in locally here in Australia and New Zealand. And also over in Asia, the US and Europe.
They sell wine to over 100 countries. And staff around 3,500 people.
They’re one of the largest wine companies listed on the ASX.
So why did the TWE share price drop 26%?
Well, according to the Sydney Morning Herald an analyst has come out and suggested that TWE is ‘destroying value’.
The Merril Lynch Analyst David Errington said this when referring to their role in the US…
‘Why are you persisting with this, why do you keep throwing money at it, why do you keep throwing the best resources that you’ve had … the smartest minds are in this market and all it’s doing is destroying value’.
The company’s role in the US wasn’t the only thing that shook investors.
Treasury came out and nearly cut in half their profit guidance.
It was quite the downgrade with 2019–20 EBIT moving to 5–10%.
That’s down from 15–20%.
EBIT stands for earnings before interest and taxes.
Now, you might wondered if the market anticipated declining profits?
After all, the TWE share price had been falling since November last year.
I’ll show you on a chart. You can see it below…
Did smart money know?
Source: Trading View
What you’re looking at above is the daily chart of TWE.
It may be a little hard to see it, so let me explain it.
I’ve marked two areas on the chart. First is the blue line, second is the yellow line.
The blue line goes from November to January. It spans for 40 days and highlights a 16.28% decline.
This was long before the news came out. Then for around two weeks, TWE trades higher.
This could have just been investors looking to ‘buy the dip’.
It’s a classic, long-term investment strategy, so you can’t blame them.
Anyway, by 28 January, TWE provided an announcement. (Again this is the yellow line.)
The shares ‘gapped’ down around 5.5%. And the next day fell another 17.7%.
I wouldn’t rush in here. It’s possible ‘buy the dip’ investors will return, looking for a potential bargain.
However, experience tells me not to rush in after a company downgrades earnings.
Let things settle for a while.
Watch for TWE to make a series of higher lows and higher highs before considering committing your capital.
Until that happens, this is best placed on the watchlist.
As always, this is not a recommendation to buy or sell TWE. It is an update only. I hope you found it useful.
Until next time,
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