M1 Ltd’s Stock Price Is Down By 17% In 3 Months: What Happened?

Over the last three months, M1 Ltd’s (SGX: B2F) stock price has declined by 17%. Let’s dig into some possible reasons as to why this may have happened.

Reasons for declines

There are many reasons why a company’s share price could fall. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a company’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the company’s profit.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

In the case of M1, which is Singapore’s smallest telco, it might be both at work.

The first case with M1

For the business-related factor, M1 reported lower revenue, net profit, and earnings per share when compared to a year ago in its latest quarterly earnings release (for the three months ended 30 September 2016). The three financial numbers were down by 10.3%, 23.4%, and 22.8%, respectively.

M1’s top-line fell largely due to weaker mobile service revenue. The business segment’s top-line was in turn affected by a reduction in the ARPU (average revenue per user). The lower ARPU – a 7.7% decline for post-paid users and a 17.8% fall for pre-paid users – had more than offset an increase in the number of mobile subscribers.

The second case with M1

We now move on to the investment-sentiment-related factor.

The telecommunications sector in Singapore has become more competitive over the past year with the three incumbents – that would be Singapore Telecommunications Limited (SGX: Z74), StarHub Ltd (SGX: CC3), and M1 –  engaging in price competition. On top of that, there’s also the entry of a fourth player to the scene to consider.

As the smallest of the three telcos – and with Singapore as its only geographical market – M1 is likely to be seen as the most vulnerable player to changes in the environment since it may not have the scale of the other two telcos to withstand temporary setbacks.

These may have caused investors to grow increasingly pessimistic about the company’s prospects – rightfully or wrongly.

A Foolish conclusion

So, as we’ve seen, M1 has not only delivered poor results, developments in its business environment could also have caused investors to lose some faith in the company.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.