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Why Has Jardine Cycle & Carriage Ltd’s Stock Price Has Fallen By 24% Over The Last 12 Months?

Jardine Cycle & Carriage Ltd  (SGX: C07) is a bona fide conglomerate. In 2017, 81% of the company’s underlying profit came from the Indonesia-listed Astra. Astra operates in Indonesia and itself has seven different business segments: Automotive; Financial Services; Heavy Equipment & Mining; Agribusiness; Infrastructure & Logistics; Information Technology; and Property.

Currently, Jardine Cycle & Carriage’s stock price is at S$33.52, down 24% from a year ago. 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 Jardine Cycle & Carriage

In Jardine Cycle & Carriage’s case, I believe it’s the latter at work. The table below shows some important items from the conglomerate’s latest earnings update for 2017:


Source: Jardine Cycle & Carriage earnings press release

What we can see is that Jardine Cycle & Carriage’s revenue, underlying profit attributable to shareholders, profit attributable to shareholders, and dividend were all stronger in 2017 compared to 2016. In fact, the conglomerate’s underlying profit and dividend both grew by 16%.

Jardine Cycle & Carriage’s growth was driven by its Indonesian subsidiary Astra, which reported a 28% increase in underlying profitability in 2017. The positive performance in Astra was partially dampened by a 25% decline in underlying profit at Jardine Cycle & Carriage’s Direct Motor Interests business.

When I put all the above together, it is unusual that Jardine Cycle & Carriage’s stock price has reacted negatively over the past 12 months despite strong growth in its business. One thing, however, is quite obvious given the stock price movement: Investors were showing little interest in the company.

What’s next?

To paraphrase Benjamin Graham, in the long run the stock market is a weighing machine. In the short run, it is a voting machine.

Jardine Cycle & Carriage’s investors should remember that although the company’s stock price can fluctuate in any direction over the short term, in the long run, its stock price is driven by its intrinsic value, which in turn, is determined mainly by its profitability.

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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.