“Falling Knife” of the Week: Sino Grandness

Sino grandness logo Sino Grandness Food Industry Group Limited (SGX: JS5) takes the crown for the “Falling Knife” of the week for a “drop-it-like-it’s-hot” plunge of 17.3% from last Friday’s close of $1.39. At the time of writing, the company’s shares are being traded at $1.15. $70.5 million in market capitalization was shaved off this week.

Sino Grandness, headquartered in Shenzhen, China, is a manufacturer and supplier of canned fruits and vegetables. Its main products include canned asparagus, long beans and mushrooms. It also offers canned fruits such as mandarin oranges, lychees, pears, apple, pineapples, and yellow peaches, vegetable juices and fruit beverages.

On 27th August 2013, the SGX issued a query regarding the trading activity of the company due to a substantial decrease in the price of the company’s shares. In reply, the company said that it is unaware of any reasons that could possibly explain the substantial decrease in share price.

The fall in share price could possibly be due to the negative report that was released on China Minzhong Food Corporation Limited (SGX: K2N) by Glaucus Research.

You may ask what the report on China Minzhong has got to do with Sino Grandness. There are times when a company’s shares may be hammered, even though it did not released a bad news, simply because a rival’s stock has taken a beating due to negative news. This is referred to as the “sympathy effect”.  For example, after the Deepwater Horizon oil spill that happened in April 2010, not only the stock of British Petroleum plunged by 50%, the stocks of its competitors such as Exxon Mobil Corp and Royal Dutch Shell fell in sympathy at a clip of 17% and 23% respectively over the same period, even though they had nothing to do with the oil spill.

Investors looking to invest in this company have to discern if the fall in price for Sino Grandness presents an opportunity or is a mere value trap. Currently, Sino Grandness is trading at a PE of 6 and it does not give out dividends.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.