What happened
Outpacing the S&P 500's 3.7% decline, shares of Tronox Holdings(NYSE: TROX) have plummeted 16.4% from the close of last Friday's trading session to 9:48 a.m. ET today, according to data provided by S&P Global Market Intelligence.
While the company didn't announce any news that spooked the market, investors learned on Monday of an analyst's bearish stance on the titanium dioxide producer's stock -- and that was enough to send them reeling.
So what
John McNulty, an analyst at BMO Capital, took a pessimistic turn in his view on Tronox's stock, downgrading shares to market perform from outperform. McNulty also downwardly revised the price target on the company's stock to $16 from $21. The new price target implies upside of 17% based on last Friday's closing price.
According to The Fly, McNulty largely predicated the downgrade and price target cut on the belief that titanium dioxide prices are poised to retreat due to lower demand and an increase in energy prices.
While Tronox produces zircon and other materials, it's titanium dioxide that represents the lion's share of the company's revenue. In the second quarter of 2022, for example, titanium dioxide accounted for 81% of sales. It's understandable, therefore, that investors reacted so acutely to the speculation that titanium prices will drop and demand will lessen.
Now what
As fears of a global recession continue to frighten many investors, it's unsurprising that shares of Tronox are plummeting this week thanks to an analyst's inauspicious view of the company's immediate future. It's critical to remember, though, that the analyst's view doesn't address the company's long-term prospects. Tronox is a leader in the supply of titanium dioxide, a critical material used by various industries. Patient investors, consequently, have a chance to scoop up shares at a discount as they're now trading at 3.1 times forward earnings, a discount to its five-year average multiple of 11.1.
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Scott Levine 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.
