Why the Costa Group share price (ASX:CGC) is crashing this morning

The market is holding on to recent gains but the big rally in the Costa Group Holdings Ltd (ASX: CGC) share price came to a jarring halt.

| More on:
falling asx share price represented by business man wearing box on his head with a sad, crying face on it

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The market is holding on to recent gains but the big rally in the Costa Group Holdings Ltd (ASX: CGC) share price came to a jarring halt after it was downgraded by a leading broker.

The CGC share price tumbled 5.6% to $4.05 in early trade when the S&P/ASX 200 Index (Index:^AXJO) is trading a little under breakeven.

This makes the Costa share price the worst performing stock on the ASX 200 at the time of writing. The fruit and mushroom grower is the only non-gold stock on the worst losers list.

The Resolute Mining Limited (ASX: RSG) share price and Gold Road Resources Ltd (ASX: GOR) share price are in second and third positions.

Costa share price downgraded by broker

The underperformance of the CGC share price comes after it surged by around 70% over the past year.

All the good news and little of the 2021 risks looks to be priced into the stock, according to Citigroup.

The broker downgraded the Costa share price to "neutral" from "buy" even as it lifted its 12-month price target to $4.30 from $3.75 a share.

Blueberries leave sour taste

"We believe Costa remains well positioned to benefit from better growing conditions and higher prices in some produce categories," said Citi.

"However, the fundamentals in berries are still mixed with elevated supply likely to restrict growth in margins."

There has been an oversupply of blueberries over the past five years. While consumption jumped by 2.5 times over the period, prices have been falling, according to Citi.

No price recovery expected in 2021

While the market is looking more balanced today, the broker doubts we will see any price growth due to higher crop yields.

"In response to more competition in blueberries, Costa is shifting its mix both through the time it harvests and the type of berries it produces," added Citi.

"We expect the company to deliver 3%-5% revenue growth sustainably in berries, largely through a better mix of sales. Blackberry hectare growth is also a source of upside."

Risks and rewards are finely balanced

Citrus exports are another sweet spot for the group and a big reason behind Citi's decision to boost its target price on the Costa share price.

The price of citrus fruits is up by more than 60% in some markets, although this is partially offset by weaker mushroom prices.

Other headwinds for Costa include the risks of higher costs from its Moroccan operations and higher rental expenses.

Motley Fool contributor Brendon Lau owns shares of COSTA GRP FPO. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Fallers

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Dexus, Mayne Pharma, Nufarm, and Treasury Wine shares are falling today

These shares are having a tough session on Thursday. But why?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why James Hardie, Mayne Pharma, Nufarm, and Resimac shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Kogan, Monash IVF, OFX, and ResMed shares are falling today

Why are these shares taking a tumble today? Let's find out.

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Share Fallers

Why Appen, DroneShield, Gentrack, and New Hope shares are dropping today

These shares are starting the week in the red. But why?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Dexus, Dusk, Fletcher Building, and Paladin Energy shares are falling today

These shares are ending the week in the red. But why?

Read more »

Couple look at a bottle of wine while trying to decide what to buy.
Consumer Staples & Discretionary Shares

Treasury Wine shares: Buy, hold, or sell? Here's Macquarie's take

What is Macquarie forecasting for Treasury Wine shares amid the CEO’s unexpected exit?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Newmont, NRW, Peet, and Treasury Wine shares are dropping today

Let's find out why investors are selling down these shares on Thursday.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Aristocrat, EBR, GQG, and Insignia shares are tumbling today

These shares are having a tough time on hump day. Let's find out why.

Read more »