While both of these companies operate in vastly different sectors – one a rare earths miner, the other a premium brand retailer – they do have one thing in common. Their share prices are both down over 50% this year, and recently touched new 52-week lows.
Oroton Group Limited (ASX: ORL)
A sometimes-favourite of Motley Fool contributors, Oroton Group's downwards slide began after the exit of Ralph Lauren and a lower profit guidance for FY2014 was confirmed in August last year. Since then, the share has dropped from over $7 to its current price of $3.60, a decline of ~51%. FY14 profit looks to be substantially lower than 2013 as well, with estimates varying from $16-25 million depending on market conditions and the success of the new Brooks Brothers joint venture.
I think Oroton group has probably gone as low as it will go (give or take 10-20 cents), in the absence of any bad news. A slipping ASX may drag the company down a little further but I think it is inconceivable that Oroton will drop below $3 without any more downwards earning revisions.
Brooks Brothers is a great addition to Oroton's portfolio and I am very excited about the new stores opening in China, Hong Kong and Dubai. I have written several times recently about the growing Chinese middle class, and the opportunities it provides for Treasury Wines (ASX: TWE) and Australian healthcare companies. Oroton Group is another excellent company to add to your China-exposed watchlist, and if its expansion there is as successful as I am expecting, today's price of $3.52 could well represent excellent value.
Lynas Corporation (ASX: LYC)
This ASX-200 listed Rare Earth Oxide (REO) miner's share price has also been in doldrums on the back of low realised prices for its products. Down a fraction over 50% from 60 cents to 25 cents at the moment, Lynas Corporation's price drop could be due to a continued weak REO market prices and a low amount of cash ($67 million) on hand. A quick glance through the books showed the company operating at a net cash flow (year to date) of -$54.26 million as at 31 December 2013. With only $67 million cash on hand and a softening of REO prices by 5% during the same quarter, it's no surprise investors are jumping ship.
There are two points of good news, however; the market demand for REO is projected to increase over the coming decade (according to Lynas' graphs), and Lynas has plenty of spare production capacity to scale up to demand. If the prices rebound, investors could see a significant upside. The real challenge for Lynas will be surviving that long – check out Mike King's article on why this company is peering into the abyss.
Foolish takeaway
Oroton Group is definitely one for the watchlist, and is a company I would seriously consider buying in the next year or so. Lynas however is a far riskier proposition and I would recommend investors steer clear for at least 12 months to see if demand (and price) for Rare Earth Oxides increase. Oroton looks to have gone more or less as low as it will go, although Lynas could well fall a lot further if industry conditions worsen.
