What Happened to Sigma Pharmaceuticals Ltd’s Share Price?
Shares in Australia’s biggest listed pharmacy brand, Sigma Pharmaceuticals Ltd [ASX:SIP] sold off heavily today, with the stock giving up almost 5% of its value. Despite today’s negative price action, Sigma has rewarded shareholders reasonably well over the last 12 months with a 24% capital gain.
Why Did This Happen to SIP Shares?
This morning Sigma reported what looked at first blush like a positive result for the six months ending 31 July 2014.
The company grew net profit by 37.5% over the previous comparable period, to $22.4 million.
Unfortunately, sales don’t seem to have driven the strong profit result. Sales revenue grew by just 2.6%. What’s more, the company has ‘temporarily’ suspended its interim dividend.
And CEO Mark Hooper foreshadowed tough times for the industry, saying:
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‘The old model of 70 per cent coming through dispensary and waiting for 1000 scripts to walk in through the door, that’s gone…the way you make your income has got to change with the way that the funding is coming through to support your business.’
The market seems worried about Sigma’s ability to move with the times as the federal government trims back on its $9 billion pharmaceutical benefits scheme. That’s why the share price retreated today.
What Now for Sigma Pharmaceuticals Ltd?
Sigma Pharmaceuticals trades at a lofty price-earnings multiple for a company facing serious structural change in its industry.
Supermarkets and discount chains have chipped away at the old model for pharmacy businesses. It’s not getting easier for companies like Sigma to make a dollar.
With the shares having handily outperformed the market over the past year, now might be a time to consider stocks with fewer clouds in the outlook.
Cheers, Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator
Join Money Morning on Google+
The post Why the Sigma Pharmaceuticals Ltd Share Price Sank Today appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
