Why the NIB Holdings Ltd Share Price Sank Today

What Happened to NIB Holdings Ltd’s Share Price?

Shares in health, life and travel insurance company NIB Holdings Ltd [ASX:NHF] fell out of bed today, with the stock shedding nearly 7% of its value. Despite today’s negative price action, the stock has still performed admirably over the last 12 months…its capital growth has exceeded 46%.

Why Did This Happen to NHF Shares?

Today NIB Holdings traded ‘ex-dividend’. That means that if you wanted to get your hands on the 14.75 cent franked dividend that the company will pay out in a few weeks, you needed to hold the shares as of yesterday afternoon. That includes the nine cent special dividend the company announced a few weeks ago.

A company’s stock price usually drops by the value of its dividend on the ex-dividend date…give or take a few cents. That’s why market observers expected NHF shares to go down by around 15 cents today. So why did NIB Holdings drop by as much as 29 cents during the day?

This looks like a classic case of yield-hungry investors bidding a share price up by an abnormal amount in the weeks leading up to its ex-dividend date…only to sell their shares as soon as they’ve qualified to receive the dividend.

That’s what I see when I look at the price action between the company’s solid full-year result in late August and today.

Every stock attracts investors with a different mix of preferences and styles, and that mix can change over time. It looks like NIB Holdings got a little too heavy with income-focused investors over the past few weeks.

What Now for NIB Holdings Ltd?

NIB has been a great share price performer over the past few years. But for a stock to trade on a price-earnings ratio of close to 20 times, it needs to post stronger growth than what the market saw in NIB’s full-year result…net profit up less than 4%.

Managing director Mark Fitzgibbon may need to pull some more tricks from his sleeve if his company’s long-term share price momentum is to continue.

Cheers, Tim Dohrmann
Small-Cap Analyst, Australian Small-Cap Investigator

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