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Why Did Sarine Technologies Ltd’s Share Price Plunge 17% Last Week?

Sarine Technologies Ltd (SGX: U77) is an Israel-based company involved in developing, manufacturing, marketing and selling precision technology products for processing of diamonds and gemstones. The company’s products provide solutions for every stage of rough diamond manufacturing process.

Last week, the company’s stock price plunged by 17%. The main culprit should have been the profitability guidance and industry update given during the week.

Profitability guidance and industry update

Last week, Sarine issued a profitability guidance, estimating that its third-quarter revenue would just exceed US$11 million and that it would record a minimal operating loss of several hundred thousand dollars.

Below is the statement from the update:

“We estimate our revenues for the third quarter will just exceed US$11 million, and we currently expect that we will thus record a minimal operating loss of several hundred thousand dollars, including non-cash expenses of approximately $1 million (depreciation, amortisation and option based compensation).

On that basis, we expect to report revenues of just under US$ 46 million and operating income of approximately US$ 7 million for the nine months ended September 30, 2017.

The company stated that the buildup of surplus inventories of polished diamonds in the mid-stream, ongoing illicit operations infringing on its intellectual properties and uncertainties stemming from litigations pertaining to these issues impacted equipment sales in the third quarter.

A Foolish takeaway

Clearly, the profitability guidance took investors by surprise since the company has previously guided a positive operating environment in the second half of 2017.

Going forward, investors should keep an eye on the inventory level of polished diamond and the illicit operations as both factors will materially impact the company’s performance in the near future.

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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.