The performance of the Interserve plc (LON:IRV) (IRV.L) share price has continued to be disappointing in recent months. The company’s stock price has declined from around 69p three months ago to approximately 48p at the time of writing.
That’s a fall of 30% in a relatively short space of time, and follows a period of decline for the business in prior months. In the short term, I wouldn’t be surprised if there are further falls in the company’s share price, since investor sentiment seems to be weak. And from my experience, trends can be persistent over a sustained period of time.
Interserve is expected to post a fall in EPS of around 77% in the current year. This suggests to me that it continues to face challenging operating conditions. While it has been able to win new contracts in recent months, I feel that revenue and profit growth could be difficult for it to come by over the near term. A tough economic environment may lead to reduced demand for the company’s services.
In spite of this, the stock is seeking to put in place an improved business model. It is attempting to become more efficient through cost reductions, and they could lead to a stronger financial performance further down the line. And while operating conditions may be tough at the moment, a P/E ratio which is in the mid-single digits could suggest that investors are factoring in the company’s challenges.
That said, I feel that Interserve could experience further challenges in future. I believe that while it has an improving strategy that could yield higher returns in the long run, investor sentiment could remain weak and lead to further challenges in the company’s investment performance. As a result, after a 30% fall in three months, I’m not feeling particularly bullish about the company’s outlook.