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Why Has SIA Engineering Company Ltd’s Stock Price Fallen By 21% In The Last 3 Months?

SIA Engineering Company Ltd (SGX: S59) provides aircraft maintenance, repair, and overhaul services to over 80 international airlines around the world.

Over the last three months, SIA Engineering’s stock price has declined by 21%. 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 SIA Engineering

In SIA Engineering’s case, I believe it’s both forces at work.

Let’s run through the company’s latest business performance first. SIA Engineering’s quarterly revenue was flat year-on-year in the first quarter of its financial year ending 31 March 2018 (FY2017-18).

Yet, its operating profit (excluding one-off items) was down by 8.1% in the quarter. Its profit attributable to shareholders (again, excluding one-off items) dipped by 4.7% too. So, it’s clear that SIA Engineering’s latest quarterly earnings was not the best.

Now, let’s discuss investors’ sentiment. I see some possible reasons for sentiment to turn negative. For one, SIA Engineering was booted out of the Straits Times Index (SGX: ^STI) last month. Then, Bloomberg reported on 4 October 2017 that investment bank JP Morgan wants to sell its entire stake of 38.9 million shares in SIA Engineering.

Both developments may have contributed to growing pessimism toward SIA Engineering from the market.

Going forward, it will be important for investors to focus on the long-term prospects of SIA Engineering. It is the fundamentals of a company, rather than short term news flow, that will drive its long-term stock price movement.

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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.