The Pact Group Holdings Ltd (ASX: PGH) share price has continued its recovery, crossing the $2.80 mark for the first time since August this week. Pact shares are now up around 35% since reaching an all-time low of $2.08 also back in August, and today will set you back $2.76 (at the time of writing).
What's been happening at Pact?
As touched on, Pact shares suffered a massive crash in August when management reported a collapse in profits for FY19. Pact's statutory net profit actually came in at a loss of $290 million, compared with a profit of $474 million for the prior year. The primary driver of this loss was drastically higher input costs (mainly the resin that Pact uses to manufacture plastics) and a tapering in demand for its packaging products.
The company announced its payment of dividends would also be suspended in order for "greater capacity for restructuring and growth initiatives".
Why have Pact shares been rebounding?
The share market is normally a place of rational valuations, but sometimes the markets can act with emotion instead. It's my opinion that this has been Pact's story over the last few months. There are few things investors hate more than a dividend being suspended, and fewer things analysts hate more than earnings uncertainty. Pact delivered both in August, and thus the market 's reaction was brutal.
However, the appreciation of PGH shares since then has occurred despite the company saying that its forward earnings guidance remains unchanged and no other news coming out of Pact. Thus, it's my personal view that this rebound is just a restoration of rationality in the pricing of PGH shares.
Is Pact a buy today?
I still think there's value in PGH shares today. The company is in a highly inelastic industry, and I'm sure that there's still a future for the juice bottles, milk crates and washing powder containers that Pact manufactures. The company is restructuring, but this all looks to be going well from my perspective, and I also think that Pact's dividend will be reinstated once this process has concluded.
For some context, Pact Group's last dividend came in at 11.5 cents per share, which if annualised would equate to a yield of 8.21% on current prices.
Foolish takeaway
I think Pact's experience over the last few months shows the value of being a contrarian investor – and 'being greedy when others are fearful', to quote a certain great investor.
Opportunities like this are rare, but lucrative if you can tune out the white noise and focus on the fundamentals.
