The A2 Milk Company Ltd (ASX: A2M) share price has had a few weeks to forget.
In the past 3 weeks, the embattled company’s shares have lost more than 12%, making it one of the worst performers across the sector. By comparison, the rival Bubs Australia Ltd (ASX: BUB) share price lost 4.4% across the same timeframe.
At the time of writing, A2 Milk shares are edging into the green at $5.17, up 0.19%.
Why did the A2 Milk share price fall?
It’s no secret that cross-border trade issues have led to the fall of the A2 Milk share price.
COVID-19 has severely disrupted the company, causing logistical challenges between Australia and China.
This has weighed on investor sentiment, fuelling the sell-off in A2 Milk shares.
As such, demand/supply volatility has caused excess inventory levels, along with the Chinese infant nutrition market experiencing reduced growth. This follows the release of China’s 2020 birth numbers, showing a reduction in the nation’s birth rate.
In its interim results, A2 Milk noted the challenging market conditions but insisted it is making good progress in stabilising sales.
Previously, the company had to write off stock and deliberately slow sales in the fourth quarter of FY21. This was due to the significant decline in its English-label infant milk formula (IMF) sales through both daigou/reseller and e-commerce channels.
Management noted that the market landscape has experienced unprecedented change over the past 12 months, requiring the company to adapt.
Nonetheless, A2 Milk expects to deliver revenue growth this year after reporting a 2.5% decline to $661 million in H1 FY22.
It is worth noting though that while the revenue outlook has been improved, this will not translate into higher earnings.
The company is focused on increasing its brand investment to drive consumer demand along with other growth strategic priorities.
Does the current share price represent good value?
A number of brokers believe the A2 Milk share price is currently trading at a bargain.
Following the company’s half-year financial scorecard, Macquarie analysts raised their 12-month price target for A2M Milk shares by 7.7% to $5.60. Based on the current share price, this implies an upside of 8.1% for investors.
On the other hand, the team at Citi lowered its outlook on the company’s shares by 1.8% to $7.02.
While the broker reduced its assessment on A2 Milk, it still sees value in the fresh milk and infant formula company. The price target represents a potential upside of 35.5% from where it trades today.
The post The A2 Milk (ASX:A2M) share price has spilled another 12% in 3 weeks. Is now the time to pounce? appeared first on The Motley Fool Australia.
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More reading
- Why this broker sees 40% upside for the A2 Milk (ASX:A2M) share price
- Hot or cold? Here’s how the A2 Milk (ASX:A2M) share price performed in February
- A2 Milk (ASX:A2M) share price slips amid ‘long-term implications’ of flooding
- Why this top broker rates these ASX shares as buys in March
- What’s next for the A2 Milk (ASX:A2M) share price?
Motley Fool contributor Aaron Teboneras owns A2 Milk. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk and BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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