The fallen star (Caesarstone Sdot-Yam Ltd.)

While surfing the internet, I noticed that Ron Baron (founder of Baron Capital, an investment management firm) has just bought shares of Caesarstone Sdot-Yam Ltd. The company engages in the manufacture and sale of Engineered stone surfaces such as are used for kitchen countertops, vanity tops and tiles.

The company shares have dropped 32.55% in the past 52 Weeks. (read here) The share price has dropped below the Peter Lynch Earnings Line. (read here)

Not too long ago in 6 July 2015, the 52 week high price of the stock is $70.28 (read here).

 The reason for the plunge in the share prices could be attributed to attack from short-selling market research firm Spruce Point Capital Management in Aug 2015 (read here and here).

In 29 Sept 2015, the securities litigation law firm of Brower Piven, A Professional Corporation, announces that a class action lawsuit has been commenced in the United States District Court for the Southern District of New York on behalf of purchasers of CaesarStone Sdot-Yam Ltd. securities during the period between March 25, 2013 and August 18, 2015 (read here).

When I looked at its financial, it appears that the company has good fundamentals. What is striking perhaps is the decreasing free cash flow over the years vs the increasing EPS. Not too long back at the end of 2014 – somebody even commented that it is a great growth stock (read here).

 

Question now is what would be the maximum consequence faced by the firm and would the drop in share price justify the value then….

There has been a no. of reports stating that the shares are oversold.