The Star Malaysia - StarBiz
Sharp reversal for gloves
GLOVE stocks had a stellar 2020. There is no question of their historic surge after the Covid-19 pandemic gave those companies the one thing that has eluded the industry for some time and that was pricing power.
With that, the companies in the sector charged increasingly higher prices for the same product as buyers around the world scrambled for PPE equipment, including gloves.
But as the world embarks in 2021, that dynamics are eventually change.
Supply is going to boom with foreign companies, and even domestic ones, venturing into making a substantially large number of gloves that will slowly fill up the demand gap that currently exists.
And with the vaccines being rolled out aggressively and more importantly, as hospital beds get freed up and the number of cases in developed countries start to plunge, then the reverse is going to happen for glove companies in at least the medium term.
But for the near term, from the high price-to-earnings (PE) ratio they commanded last year, glove companies are now trading at single-digit PE ratios.
The question now is what is their earnings going to be?
As they start to see a reversal in their share prices, which has already seen them slip by double-digit percentages so far this year, the question will be will those glove stocks then find even more operating pressures befalling on them then prior to the pandemic.
A glut will spell trouble for a price sensitive industry where money was being made by ever increasing volumes. But with the incoming planned supply being so large, then that simple historical dynamic will get challenged like never before which brings into question just how much more downside do those glove stocks have.