When a FTSE 100 inventory begins buying and selling near its 52-week low, issues can get fascinating. Sometimes, this form of scenario arises when an organization lands itself in some sizzling water. And that actually appears to be the case for Reckitt Benckiser (LSE:RKT).

Till just lately, the patron staples enterprise appeared to be chugging alongside simply high-quality. However following the discharge of its full-year outcome for 2023, shares ended up tumbling off a cliff. And the scenario solely obtained worse a number of weeks later following the result of a authorized battle which will have simply opened the agency to probably £2bn in liabilities.

What occurred? And will traders steer clear? Or use this volatility as a shopping for alternative?

The collapsing Reckitt share worth

As one of many largest shopper staple firms within the UK, Reckitt Benckiser owns an unlimited portfolio of family manufacturers. A number of the hottest are Durex, CillitBang, Strepsils, and, till current headlines, Enfamil. I’ll get to the latter in a second. However let’s begin with the financials.

Regardless of proudly owning manufacturers present in virtually each family, the group’s pricing energy seems to have reached its restrict with customers. Additional worth hikes had been supposed to assist bolster gross sales and earnings in 2023. As an alternative, they appear to have made the scenario worse, with product volumes throughout all classes tumbling as buyers flip to low cost options.

It wasn’t all dangerous information as free money stream technology loved a strong 11% bounce to £2.26bn. However general, each income and earnings got here in decrease than anticipated. And with traders already holding the enterprise on a brief leash, the inventory tumbled 12%.

Then got here the decision from a US jury that the agency’s Enfamil child formulation led to the demise of a untimely toddler. Administration vehemently rejects the result, stating that the result was “not supported by the science or consultants within the medical neighborhood”. As such, it intends to overturn this judgement by enchantment. However analysts from Barclays have already began including up the potential prices.

With 1000’s of potential plaintiffs prone to begin making authorized claims towards the enterprise, as much as £2bn in damages might be heading in Reckitt’s path. And subsequently, the inventory took one other double-digit nostril dive.

Are traders overreacting?

A confirmed technique for constructing wealth on the inventory market is to purchase when there’s blood within the streets. And that actually appears to be an apt description for the scenario this FTSE 100 enterprise has discovered itself in. So is that this a shopping for alternative?

It’s value stating that the findings from Barclays had been an excessive worst-case situation. If administration’s right about its assertion relating to the dearth of scientific accuracy, an enchantment could also be profitable. And this might rapidly put a cease to the vast majority of different potential authorized circumstances towards the agency.

Having stated that, the reputational injury of Enfamil actually doesn’t assist the scenario. For sure, customers aren’t prone to be utilizing this once more any time quickly.

As for the remainder of the core enterprise, the continued restoration of the macroeconomic atmosphere will seemingly assist enhance efficiency all through 2024 and past. Not less than, that’s what analyst forecasts had been predicting earlier than the decision was introduced.

Personally, I’m sticking to the sidelines for now. Till the result of the enchantment and any subsequent potential lawsuits towards the agency are settled, I stay untempted to begin shopping for even at right now’s costs. In spite of everything, I put money into companies, not legal professionals.