Down almost 60% in 1 year. Can this ASX industrial stock turnaround?

Let's dive in and see.

| More on:
Woman and man calculating a dividend yield.

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

ASX industrial stock Johns Lyng Group Ltd (ASX: JLG) has seen its share price drop by nearly 60% in the past year after a 38% drop in the past month alone.

Shares in the insurance and building restoration business are priced at $2.54 apiece before the open on Wednesday, a far cry from their former highs of more than $9.20 in April 2022.

With the stock now trading at the same level it was in 2020, we have to ask: Can this ASX industrials stock turn things around? Let's dive in and see.

Created with Highcharts 11.4.3Johns Lyng Group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

Why is this ASX industrial stock lower?

Industries tied to the broad insurance sector caught a bid in early 2023 as inflation spiked, and a series of natural disasters caused many policies to skyrocket. This was short-lived.

Weather conditions across Australia improved, leading to fewer insurance claims in 2024, particularly in disaster-related work for Johns Lyng.

As the ASX industrial stock reported in its H1 results, this caused a 68% drop in its catastrophe insurance revenue.

Project delays in NSW and the US further hindered its performance during the half. As a result, management tightened the guidance belt, projecting 5% lower revenues to $1.16 billion.

Shares are subsequently down sharply over the past year, and this is important. Why? Because a loss and a gain are not equal.

To break even from a 5% loss, you only need a 5% gain. But from 10%? You now need 11.1% just to break even.

A 60% loss means you need a 150% gain just to break even – not be in the green.

Percentage Loss% gain needed to break even
5%5%
10%11.1%
20%25%
30%43%
60%150%

More recently, Johns Lyng was kicked out of the ASX 200 Index earlier this month.

As reported by my colleague James, the sharp declines over the past year mean the ASX industrial stock's market cap doesn't fit the index's criteria.

This has implications. Constituents of the index enjoy a 'momentum' effect as large Superannuation funds purchase ASX shares as part of their quarterly mandates.

These funds are typically restricted to ASX 200 shares, meaning Johns Lyng will no longer enjoy this passive-buying effect as the Super funds roll in member contributions.

What about the positives?

While it's been a tough period, Johns Lyng has taken several strategic actions to position itself for recovery.

One notable move was the acquisition of its 87.5% stake in Keystone Group. This is a Queensland-based provider of insurance building and restoration services.

Despite the narrowed guidance, the consensus of analyst estimates still rates the ASX industrial share a buy, according to CommSec.

Morgans is one on the bullish side. As we reported last year, the broker likes the Keystone acquisition, upgrading its pre-tax earnings forecasts by 7% as a result.

According to Tradingview, brokers see an average price target of $3.12 apiece. This signals a 23% upside potential from the ASX industrial stock's price before the open on Wednesday.

Foolish takeaway

This ASX industrial stock has suffered in the past 12 months, but it's not all doom and gloom. Brokers still rate it highly, and management hasn't sat on its laurels.

Only time will tell what happens from here. Regardless, Johns Lyng shares have a mountain to climb before recovering this 60% loss in the past year.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Industrials Shares

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Industrials Shares

Key takeaways from ALS shares results according to Macquarie

ALS announced an underlying net profit after tax (NPAT) of $312 million this week.

Read more »

A woman sits crossed legged on seats at an airport holding her ticket and smiling.
Industrials Shares

What does Macquarie think Auckland International Airport shares are worth?

Is it time to invest in this unique holding?

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.
Industrials Shares

Guess which ASX 200 share is down 8% on earnings miss

Why are investors selling this stock? Let's dig deeper into things.

Read more »

Two male ASX 200 analysts stand in an office looking at various computer screens showing share prices.
Broker Notes

Macquarie tips 20% upside for this ASX 200 industrials stock

Let's see what the broker is saying about this stock following an update.

Read more »

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.
Industrials Shares

Guess which ASX 200 stock is crashing 24% on results day

Investors were not impressed with this result. But why?

Read more »

A man looking at his laptop and thinking.
Industrials Shares

Which ASX 200 industrials stock does Macquarie expect to sink 40% over the next 12 months?

Can this name build it's way out of such negative sentiment?

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Industrials Shares

ASX 300 stock falls on shock founder CEO exit

A change of leadership has been announced.

Read more »

Male and female workers at a steel factory.
Industrials Shares

4 reasons this $10 billion ASX 200 stock can keep charging higher into 2026

A leading expert forecasts ongoing earnings growth for this top ASX 200 stock.

Read more »