Should you catch falling knife WYG plc after 30% share price drop today?

Project management and consultancy specialist WYG(LSE: WYG) was on the end of a hammering in Friday trade after the release of another profit warning sent investors scurrying towards the exits.

The Leeds business dropped 33% after announcing that it "has further revised its expectation of operating performance over the remaining months of the financial year." It now anticipates operating profit of £3.5m to £4m for the 12 months ending March 2018.

The news comes just three months after WYG advised that profits would be "substantially lower than current market expectations" in another scary update. The company generated adjusted operating profit of £8.8m during fiscal 2017.

In addition, it said that net debt would range between £6m and £7m for the full year, ballooning from £2.5m as of March.

Consultancy division crumbling

Today it said that its International Development division continues to trade in line with the revised predictions made in August (the firm said that a number of construction project delays had dented performance here in recent months).

But it added that conditions at its Consultancy Services business have continued deteriorating. The unit "has continued to experience lower trading volumes than anticipated as a result of the loss or delay of certain new contracts we had previously expected to win in the current period, and significantly lower than anticipated volumes of work under certain major framework contracts."

City analysts had been expecting earnings to topple 34% in the current year even before today's update. This projection, as well as the touted 16% earnings rebound in fiscal 2019, would now appear to make put on course for swingeing downgrades in the days and weeks ahead.

Indeed, I reckon it would take a brave investor to buy the firm before next month's half-year results (currently slated for December 5), a release that could well reveal further horrors. I reckon WYG should be avoided right now despite its ultra-low forward P/E ratio of 5.7 times.

Home comforts

If you are looking for a construction play with a much-more robust earnings outlook than WYG, I reckon Cairn Homes (LSE: CRN) is a brilliant selection today.

You see, just like in the UK, the yawning supply imbalance in the Irish housing market (and especially in Dublin) is likely to take many, many years to remedy, playing into the hands of the likes of Cairn. The builder saw revenues exploding 157% during January-June, to EUR41.2m, while its "strong and growing pipeline" jumped to 474 units as of June from 301 units three months earlier.

What's more, Cairn is planning to light a fire under construction rates to drive profits through the roof. It has plans to build 1,200 homes per year by the end of the decade.

The City is expecting the business to finally swing into the black this year, moving from losses of 0.3 euro cents per share in 2016 to earnings of 1.8 cents in 2017. And earnings are expected to skip to 7 cents in 2018.

In my opinion the Cairn Homes is a great share to buy and cling onto, and particularly given its bargain-tastic forward P/E ratio of 9.7 times.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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