Unfortunately for its shareholders the Sigma Healthcare Ltd (ASX: SIG) share price is once again sinking significantly lower.
At the time of writing the pharmacy chain operator and distributor's shares are down almost 8% to 85.7 cents.
This means its shares are down close to 34% since the start of the year.
What happened?
This morning Sigma provided the market with yet another trading update and as you might have guessed, it wasn't a positive one.
According to today's release, Sigma has downgraded its full-year underlying earnings before interest and tax (EBIT) guidance from $95 million to around $90 million.
This downgrade is the result of management responding to tough trading conditions by taking steps to enhance its sales performance and market share growth.
Whilst it hasn't explained the steps it has taken, it seems apparent that Sigma is cutting prices in order to compete.
Should you buy the dip?
Things really don't look good for Sigma at the moment.
As well as potentially embarking on a price war with rivals Australian Pharmaceutical Industries Ltd (ASX: API) and the local pharmacies of Ramsay Health Care Limited (ASX: RHC), Sigma also faces the risk of losing one of its major clients in the future.
As we have mentioned before, Sigma and the My Chemist/Chemist Warehouse Group (MC/CW) are currently in a formal negotiation period to seek a commercial resolution to their supply dispute.
MC/CW is intent on acquiring certain products from an alternate wholesaler which would potentially impact Sigma's EBIT by between $5 million and $10 million per year.
The danger here is that if the relationship sours, which I believe it has following Sigma's decision to take legal action, then Sigma could end up losing the entire supply agreement with MC/CW when the contract expires in June 2019.
Overall, considering the tough trading conditions it faces today and the potential loss of the MC/CW contract in the future, I would stay well clear of Sigma for now despite how cheap it may look.
