Luxottica Group SpA (ADR) (NYSE:LUX) is off 17% year-to-date, with the stock recently dipping to a new 52-week low. Although there have been plenty of reasons to love LUX stock in the past, the fact that it’s down almost 30% from its highs last summer and continuing to fall fast should give investors pause.
In fact, there are a lot of indicators that things will get worse before they get better for Luxottica Group in 2016.
Most notably, the growth story that was so compelling a few years ago has faded. Three straight misses on quarterly earnings coupled with recent downgrades to forward guidance are the latest proof of this trend. Furthermore, fiscal 2015 revenue declined by a few percentage points, even if overall EPS did move higher.
These fundamental shortfalls come as broader strategic problems have plagued LUX stock for the better part of two years now. Luxottica Group has suffered under continued management troubles, with three CEOs quitting since the longtime leader of the company left in 2014.
LUX Stock’s Dark Future
When you have a company where the status quo involves sales and profits that disappoint Wall Street, and where there is a leadership vacuum creating uncertainty about where the organization is headed, it doesn’t look good. And when you throw in the fact that the valuation of LUX stock is a bit stretched — with Luxottica Group trading for almost 30-times next year’s earnings — it’s very difficult to believe that this stock is worth buying right now.
Sentiment is the final nail in the coffin, since many stocks that set 52-week lows tend to move even lower as jaded investors give up and look for greener pastures.
While LUX stock had managed to hold reasonably steady and only drifted marginally lower across the end of 2015, another disappointing earnings report and an overall lack of patience by investors has driven Luxottica Group down sharply in recent weeks.
In this environment, where the market is quite volatile and investors have generally gone “risk off,” it simply doesn’t make sense to invest in a discretionary name like Luxottica Group with deteriorating fundamentals and poor leadership.
Sure, earnings are growing still and FY2016 should see a 7% increase in the top line, too. But investors should not be willing to give Luxottica Group the benefit of the doubt until it starts to meet expectations again and installs a stable management team.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- 8 Best Cheap Stocks to Buy on This Dip
- 5 Penny Stocks to Buy Now!
- 3 Out-of-the-Box Dividend ETFs to Buy