What: Shares of Darling Ingredients (NYSE:DAR) gradually fell 12% in the month of July without any major news. What's going on?
So what: The reason is pretty simple and has been a common factor for many companies dependent on commodity markets: crude oil prices.
Consider Darling Ingredients' stock price compared to that of West Texas Intermediate crude oil in July:
The company converts edible and inedible oils and fats into food, animal feed, and fuels. While the bulk of its business is not directly related to petroleum products, lower crude oil prices dragged the selling prices for other commodities down, too. Already facing margin pressure due to low fat and protein costs, made worse by increased volumes of animal fats used as raw materials, Darling Ingredients has executed cost reduction initiatives to mitigate the effects. Mr. Market appears to be thinking ahead in predicting that the situation in commodity prices will get worse before it gets better.
Now what: Despite the headwinds, Darling Ingredients is still profitable and owns a solid business capable of pushing through short-term weakness. Commodity prices could remain lower than anyone expects, but investors are still looking at a solid company over the long term.
Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, CAPS page, previous writing for The Motley Fool, and follow him on Twitter to keep up with developments in the synthetic biology field.
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