Why Aceto Corporation's Shares Plunged 65% Today

What happened

Shares of chemicals company Aceto Corporation (NASDAQ: ACET) plunged as much as 64.9% in trading Thursday after announcing major financial changes, including the likely reduction of its dividend. At 12:10 p.m. EDT shares were down 62.8% and showed no signs of recovering today.

So what

The most alarming announcement was that Aceto said competition and pricing pressure in the generics market has been so bad that it is negotiating with lenders for a waiver on financial covenants for the fiscal third quarter of 2018. The guidance given Feb. 1, 2018 should also "no longer be relied upon" and management anticipates a non-cash intangible asset impairment charge of $230 million to $260 million.

White pills spilling out of a pill bottle.

Image source: Getty Images.

Weakening financials also means management expects a "significant" reduction in the company's dividend. A strategic review is also being done, which may mean the company will put itself up for sale.

The swift decline of Aceto's business is what is catching investors off guard today. Less than three months ago, management was predicting a non-GAAP profit of $1 to $1.05 per share and now it appears the company may breach debt covenants. Clearly, there's enough concern about the company's future that investors are running for the hills.

Now what

I don't see any reason to speculate on a buyout of Aceto Corporation today, which seems to be the only reason to buy the stock. We don't yet know if buyers would be interested in the company, and with $327 million in debt, there may not be much value left for shareholders in the case of a buyout. Expect more volatility from Aceto's stock in the days ahead and given today's news I don't see many positive outcomes for investors.

10 stocks we like better than Aceto
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Aceto wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 2, 2018

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Stocks
Referenced Symbols: ACET

More from Motley Fool


Motley Fool

Motley Fool

Market News, Investing

Research Brokers before you trade

Want to trade FX?