When investor darlings lose their shine

Some stars do fizzle out. Every once in a while, some big names in the corporate world – which once held sway among investors and had the earnings to justify the attention– tend to lose their shine.

Take the cases of Genetec Technology Bhd and SAM Engineering & Equipment (M) Bhd.

Both were once highly regarded stocks, but are now facing increasing selling pressure as earnings dip due to cost pressures and weaker demand.

Genetec’s RM45.7mil loss for its fourth quarter appears to have spooked investors, with the Employee Provident Fund (EPF) leading the exit by ceasing to be a substantial shareholder.

The stock last traded at 32.5 sen, a fraction of its high of RM3.84 when rumours of Tesla being a client sparked a rally.

Genetec could have fallen even further if not for its share buybacks.

Although management is saying all the right things about broadening its client and product base, investors appear to be voting with their feet.

Earnings tend to drive investor interest in stocks and, by extension, share prices – but that relationships can sometimes break, often in a telling way when a company faces structural or cyclical challenges.

Just look at how many local glove makers have become penny stocks after Covid-19 vaccines hit the market.

Demand then weakened as buyers depleted stocks amid a capacity bubble that triggered a price war for market share.

In SAM’s case, the EPF has turned net seller after a sharp rise in price since mid-September, coupled with weaker ­earnings for two consecutive quarters due to supply chain bottlenecks and tariffs.

With some analysts issuing “sell” calls, it has put paid to the appeal of the contract manufacturer of production equipment and aerospace products for now.

Much like the glove makers, both Genetec and SAM will need to show a material improvement in earnings to draw investors back – hopefully sooner rather than later.