The Surfstitch Group Ltd (ASX: SRF) share price could be headed for another big fall, after the retailer went into a trading halt pending an update to its earnings forecast.
The news is hardly likely to be good.
Surfstitch announced today that the trading halt was necessary to allow the company to provide the market with a further update on its anticipated pro-forma EBITDA for the year ending 30 June 2016 (FY16).
That's never a good sign and often flags a downgrade to a company's forecast. It's not the first time Surfstitch has updated its forecasts either.
On May 3, Surfstitch's share price plunged as much as 56% after shocking the market with a downgrade to FY16 forecast earnings. The company announced that it expected earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $2 and $3 million. Surfstitch had forecast EBITDA of between $15 and $18 million in 2016, after reporting earnings of $7.7 million for FY15.
Of particular concern for shareholders who have elected to hang on is the 15% fall in the share price over the past week, including 11% in the last two business days and heavier than normal volumes over the past three days. That perhaps suggests that someone may have known a downgrade is coming – although it could equally be pure coincidence.
| Date | Volume | Closing price | Change |
| 6-Jun-16 | 1,031,300 | 0.41 | -4.7% |
| 3-Jun-16 | 2,001,300 | 0.43 | -6.5% |
| 2-Jun-16 | 2,473,300 | 0.46 | 2.2% |
| 1-Jun-16 | 610,600 | 0.45 | -6.2% |
| 31-May-16 | 219,800 | 0.48 |
Source: Yahoo Finance
Foolish takeaway
Should the online surf, skate and ski wear retailer come out with another earnings downgrade as I expect, the share price is likely to take another massive dive. The odds of a shareholder class action also appear to be rising as we suggested last month.
