The Aconex Ltd (ASX: ACX) share price sunk like a rock earlier this week.
Aconex Ltd 5-day Share Price
As can be seen, Aconex shares opened sharply lower on Monday morning.
Before the market opened, the company provided a trading update to the ASX, which included a significant reduction in the software company's expected 'profit'.
In October, the company had forecast operating profit growth to be around 68% higher than the previous year. This week however it downgraded that forecast to growth of around 21%, assuming the midpoints in its forecasts.
That's a steep reduction by anyone's measure. But given how little 'profit' the company is now expected to generate ($16.5 million) relative to its market capitalisation of $603 million, it is a big blow. Before the announcement all shares in the company were worth around $1.1 billion.
Analysts were shocked by the downgrade, too. In the wake of the aftermath, the average price target reduction by analysts at Citi, Macquarie, Credit Suisse, Deutsche Bank and UBS was 45%, according to Dow Jones Newswires. The new average price target is $4.06.
But given their price targets before the downgrade, I'm not sure I'd want to place much emphasis on those targets.
Foolish Takeaway
In my opinion, you would be mistaken for thinking Aconex shares are dirt cheap at today's prices. If Aconex makes $16.5 million in operating profit this year, its shares would currently trade on a forecast enterprise value (EV) multiple of 33 times according to my calculations.
That's finance talk for, "They could prove to be very expensive if they don't grow".
If they do meet growth targets then the share price could look really cheap in a few years — and that's a kicker — but I'd rather spend my investment dollars elsewhere.
