The Baby Bunting share price is tumbling as brokers downgraded the shares on its results. But is this a buying opportunity?
The post Baby Bunting (ASX:BBN) share price hit by broker downgrades appeared first on The Motley Fool Australia. –
The Baby Bunting Group Ltd (ASX: BBN) share price underperformed for the second straight trading day as a number of brokers downgraded it following its disappointing profit results.
Shares in the baby products retailer tumbled another 5.4% to $5.40 during lunch time trade. This takes its total loss since handing in its earnings report card on Friday to circa 10%.
In comparison, the S&P/ASX 200 Index (Index:^AXJO) slipped 0.4% at the time of writing on Monday.
Baby Bunting share price spits the dummy
The Baby Bunting share price is perhaps a victim of the tall poppy syndrome as at least two brokers have moved quickly to downgrade their recommendation on its ASX shares.
Shareholders in Baby Bunting threw a tanty when the retailer’s like-for-like (LFL) sales fell 6.4% in the first seven weeks of 1HFY22. LFL sales only compares stores that have been opened for a year or more.
The weakness shouldn’t have been totally unexpected as more than half the country’s population is under lockdown.
The COVID-19 pandemic also forced up costs for the group – another headwind that should surprise few.
Not all bad news
Never mind that the Baby Bunting’s results held a number of positives. For instance, Morgans noted that FY21 net profit was 2% to 3% above consensus and its own forecasts.
Group revenue was also up 16% over the previous year and LFL sales jumped 11.4% in the period.
Further, second half gross margin expanded by a better than expected 112 basis points.
Baby Bunting share price paying the price for high expectations
But when you are trading at a premium to the market, it doesn’t take much to get thrown into the sin bin.
Morgans lowered its rating on the Baby Bunting share price to “hold” from “add” even though it acknowledged that the retailer had a bright future.
“BBN has shown its ability to grow market share and earnings well in excess of peers,” said the broker.
“Industry data clearly points to a solid birth-date backdrop over the next 6-months.”
The issue is that Baby Bunting was trading at a 26 times price-earnings multiple. This is perhaps not a bad time for the Baby Bunting share price to consolidate.
Citigroup also cut its recommendation on the shares to “neutral” from “buy”. The broker thinks the risk of more COVID-19 disruptions were not properly reflected in its share price.
Don’t cry over spilled milk
The saving grace here is that the Baby Bunting share price may have been oversold as its trading well under the downgraded price target of both brokers.
Citi cut its 12-month target to $5.90 from $6.22 a share, while Morgans lowered its price target by $0.39 to $6 a share.
Bargain hunters may be waiting for the dust to settle before jumping in.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. 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 Baby Bunting. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.