Despite coming off the back of a 1 month drop in share price of 9.20%, Reliance Wordwide Corporation has delivered admirably for shareholders over the past 6 months. In the landscape of modern investing, the movement of stocks often serves as a barometer for the market’s perception of a company’s future prospects, but peaks and troughs in price are not always a direct indicator of an individual company, but can be driven by wider economic factors, or macro data.
Reliance Worldwide Corporation Limited shares (ASX:RWC) have risen by 46.09% in the last 6 months, although today, showed further downward movement in the share price (dropping 1.69%) to add the more micro trend. The mid term upward trend caught the attention of many in the investment community, but caution may need to be exercised with the gradual downturn.
The manufacturing company, which isn’t typically categorised among large-cap stocks, has nevertheless shown signs of vigorous performance that may warrant it a closer look by both retail and institutional investors. When analysing the fundamentals of Reliance Worldwide, one would find that the company’s stock is currently trading at AU$5.23. Coming off 52 week highs in the lead up to the recent dip, longer term holders of RWC have been on a bit of a rollercoaster ride.
Over the past 5 years, Reliance Worldwide shares have added a rather paltry 5.66%. Over the same time frame, the core indices of ASX200 and All Ords have both delivered 20% plus returns. So why the sudden re-emergence of RWC over the past 6 months, and more importantly, what has caused the pullback in price?
While share prices can be influenced by a multitude of factors and can fluctuate accordingly, it’s the prospects of future earnings that often cement investor confidence. In Reliance Worldwide’s case, there’s cause for optimism as the company’s earnings are expected to see a considerable uptick, with forecasts estimating an increase of 57% over the coming years. This projection sets a positive tone for the company’s future outlook and could act as a catalyst for further investor interest and possibly even share price acceleration.
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The pullback could well be the result of the broader market pullback, but could also be a result of the dividend inconsistency. A recent $160 million purchase of the Australian company Holman Services, takes some of the cash out of the company, and lower revenue and earnings for the December half-year could be indicative of a reduction. There was an announcement towards the end of Feb, that the company intends to make a change in dividend payout, with the aim being to retain as much cash as possible.
There does seem to be a link between the financing of the Holman purchase and the dividend restructure. In order to acquire Holman, RWC will use a combination of debt and available cash flows. Switching from a 100% cash dividend to 50% cash and 50% share buyback approach allows a little more flexibility in cash flow. A 61% increase in operating cash flow for the December half-year also helped to reduce debt in the build up.
A comprehensive examination of these events highlights the dynamic nature of markets, and how quickly things can shift. For stakeholders in Reliance Worldwide Corporation Limited, the optimism surrounding the company dividend and anticipated earnings growth could serve as a foundation. For those looking for capital growth, RWC will have to take on all time highs in order to deliver significant appreciation. Whilst past attempts to push past $6 have proven successful on two occasions, these were back in 2018, and 2021 respectively. With a dividend yield of 2.8% not to be sniffed at, RWC might warrant a closer look.
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