5 WARNING SIGNS TO CONSIDER

IT’S never easy to watch the share price of one of your investments continue to fall. If you are deciding whether to sell or to hold on in the hope of a recovery, here are five factors to consider:

1 Is the company losing customers?

A BUSINESS is nothing without its customers, so if it is losing them it could spell very bad news. Find out who it is losing customers to. You may discover they are jumping ship to a new competitor that has exciting technology or a different proposition. If so, find out how your company plans to compete.

2 How are its competitors faring?

EXPLORE whether competitors face similar pressures. This will shed light on whether it is a company-specific issue or perhaps the sector is in decline because of changing consumer habits. Business updates and company results should provide some insight.

3 Are its directors buying or selling?

MARK Slater, of the Slater Growth fund, believes that if a cluster of directors at a company are selling at a similar time, it could be a big warning sign, especially if one of those selling is the finance director. ‘If they are selling aggressively, this is certainly a trigger to reassess your thesis,’ he says.

4 Short-term blip or a long-term trend?

IT IS important to discern whether a company is under pressure because of a shortterm issue, like a fire at one of its factories, or whether there are signs of something more sinister over the long-term.

Sometimes whole sectors fall into structural decline because consumer habits change and new goods or services supplant the incumbents. This need not spell disaster for a company, so long as it sees it coming, pivots and adapts.

5 How is the company responding?

TRY to gauge how the company plans to address any problems or negative sentiment towards its share price. Rathbones’ David Coombs believes that if a firm is showing no desire to review its proposition or to consider change, there is every chance that the share price will continue to slide.