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Can Costa shares bounce back in 2020?

Kenneth Hall
Fight back

Costa Group Holdings Ltd (ASX: CGC) shares have plummeted 64.21% lower so far this year as earnings and growth prospects have faded.

But could there be a buying opportunity ahead of a potential share price rebound in 2020 for Costa?

Why Costa shares are falling lower this year

Costa shares has been under pressure nearly all year following consistent earnings downgrades.

The Aussie fruit and vegetable producer’s share price fell nearly 40% in one day back in early January after downgrading FY19 earnings.

The company’s trading halt in mid-October saw the company’s shares fall lower as earnings started to look less certain. Costa subsequently delivered its third profit guidance downgrade, with weak demand and pricing hurting earnings.

In late October, the company’s shares slipped lower after announcing a steeply discounted $176 million equity raising.

The raising price of $2.20 per share was a significant discount to the $3.46 level it traded at prior to the raising.

The company’s shares are significantly underperforming the S&P/ASX 200 Index (INDEXASX: XJO) this year which is up 20.37%.

Costa is far from the only agriculture stock to be under pressure in 2019. Graincorp Ltd (ASX: GNC) shares are down 8.08% in 2019 as headwinds grow for the Aussie agriculture sector.

The drought conditions across large parts of Australia have hurt agriculture yields, while a significant debt burden continues to weigh on Costa shares.

Will the company’s shares bounce back next year?

In short, I don’t think there will be a strong rebound next year.

Costa shares have been almost in freefall for much of 2019 and the conditions aren’t looking good in 2020. There’s no sign of an end in the drought conditions and slower earnings growth that has caused the share price drop in the first place.

I don’t think there are many great value ASX agriculture stocks on the market at the moment. I’d instead be looking towards the healthcare or energy sectors for value in 2020.

The post Can Costa shares bounce back in 2020? appeared first on Motley Fool Australia.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019