Why Are Sheng Siong Group Ltd’s Shares Down By 6% In The Last 3 Months?

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore with its network of 42 heartland-centric stores. Over the last three months, the company’s stock price has declined by 6%. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

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

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.

The case with Sheng Siong

In Sheng Siong’s case, I believe it’s the latter that better explains the recent stock price decline. Here’s a table showing some important items from Sheng Siong’s income statement from its latest earnings release:

Source: Sheng Siong 2017 second quarter earnings

From the above, what we can see that Sheng Siong’s 2017 second quarter results were strong. Revenue, gross profit, the gross profit margin, net profit, and earnings per share all grew when compared to the second quarter of 2016.

Yet, Sheng Siong’s share price actually started declining after the company released its results in late July. It is thus likely that investors’ sentiment turned negative recently. But what may have caused the change in mood?

Unfortunately, there is no clear sign that I can see. One possible reason is that investors may perceive Sheng Siong’s business outlook to be less positive, since competition in the supermarket industry remains keen. Furthermore, with US ecommerce giant Amazon recently launching its Prime service in Singapore, it is not unreasonable to foresee competition increasing from here.

It is important that investors pays attention to Sheng Siong’s business performance in the coming quarters to see how well the company is coping with its increasingly competitive market.

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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. The Motley Fool Singapore has recommended shares of Amazon.