Discussion: Sigma Healthcare Limited (ASX: SIG) price drop market’s overreaction or a mere price correction.

This morning before the stock trading for the day commenced Sigma Healthcare Limited (ASX: SIG) reported on ASX the contract with Chemist Warehouse Group ending in June 2019 will not be renewed. The ASX announcement also advised estimated EBIT for FY 18/19 and FY 19/20 to be $75 million and $40 to 50 million respectively. The estimated EBIT is a departure from 90 million EBIT in 2017/18 and 100 million EBIT in 2016/17.

In response to the ASX announcement 51.2 million shares were traded on ASX and the share price dropped more than 40% by the time the market was closed.

Sigma Healthcare has a number of strengths including but not limited to;
  1. A track record of successful past acquisitions, e.g. acquisition of Herron in 2003, Amcal in 1998 and Arrow Pharmaceuticals in 1995,
  2. 19 years’ experience as an ASX listed pharmaceutical distribution company,
  3. A network of strong 1,200 stores.
Evaluation of the strengths of Sigma Healthcare begs the question does the 02/Jul/2018 sharp fall in stocks prices of the company (as a result of Chemist Warehouse Group’s contract not being extended) is an overreaction of the market or price correction.

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