Flex Ltd. (NASDAQ:FLEX) stock is finally gaining some traction after the dramatic slump in late October. The slump was a clear demonstration of the volatility of the equity market.
In particular, the firm came out during the release of the Q2 FY2019 results with guidance revisions and substantial losses. As expected, investors reacted with a massive selloff that threatened to run the stock aground.
A good reason to be scared
Although the firm reported reduced losses per share, all the other fundamentals were discouraging. Particularly, the loss per share for the three month period ended September 2018 was $0.16. This compares fairly to the $0.38 per share reported in the same quarter last year.
What broke investors’ backs was the net income as compared to the similar quarter last year. The net income amounted to $108 million compared to $218 million last year same quarter. Interestingly, the same quarter reported higher net sales. As such, investors had reason to be scared.
Flex Ltd reported $6.7 billion in net sales in the quarter ended September 2018. Last year, the amount was higher by almost $5 million. As such, it is apparent that the firm is losing its foothold in the industry.
Interestingly, the stock fell into an instant bear market as the firm reported revised guidance. Based on the net sales for the quarter, the firm revised downwards the guidance for Q3 FY2019. Given that the stock was already losing steam, it slumped with a bang on the revision.
An impending downtrend
Flex was unlucky that at the same time of reporting the disappointing results, the firm revealed the retirement of its CEO. Particularly, Michael M. McNamara alongside a few members of the Board are exiting at a very difficult time for the firm.
Interestingly, this is another reason to spook investors who are already rattled by a poor run in sales. On the other hand, this development should bring hope that fresh hands might do the work better. As such, one would expect that investors would have rushed to the stock on the news. This did not happen.
The stock remains depressed and at the mercy of the bears. Particularly, the stock still lacks steam as measures of strength indicate it could plunge further. An RSI reading of 31.92 and the CCI reading of -178.38 imply an impending downtrend. As such, the stock could slump further into a biting bear market.
Interestingly, the stock is already in the oversold territory. With a Williams %R of -89.40, the price could go even further down. In addition, the moving averages for both the 50-day and 200-day are tending downwards. As such, the resistance for the stock gets lower by every new day of poor performance.
Given the firm already revised the guidance downwards, it is almost certain Flex is not out of the woods yet.
Nonetheless, there are steps in place that could afford the CFO some smiles in the earnings report for this quarter. In the operations update for this quarter, the firm indicated that facilitating NIKE’s operations in Mexico was no longer “commercially successful.”
As such, the two firms “mutually agreed to wind-down the footwear manufacturing operations in Guadalajara by December 31, 2018.”
Looking at the developments from the positive perspective, it is clear that some burden of loss is absent. Even though Flex will incur $30 million in exit costs, it will be able to invest the remaining capital in more productive ventures.
Further, Deutsche Bank AG announced that it will strengthen its holding in the company. Therefore, the firm will have more cash on hand to invest and cover costs. As such, it is safe to conclude that Flex will return to profitability sooner.