Why the Kiwi dairy share is under pressure right now.
The post Here’s why the A2 Milk (ASX:A2M) share price is down 18% in a month appeared first on The Motley Fool Australia. –
The tough run for the A2 Milk Company Ltd (ASX: A2M) share price continues. Shares in the Kiwi dairy group are down more than 18% to $5.86 in the past month after falling 1.8% on Monday.
So, why is one of the ASX’s former growth darlings under pressure right now?
What’s dragging on the A2 Milk share price?
One place to look when trying to understand the reasons behind share price movement is price-sensitive ASX announcements. These can provide an indication of recent company-specific news like earnings updates, financial guidance or acquisition news.
However, A2 Milk hasn’t released any price-sensitive announcements since back in May. So, it pays to zoom out a little and look at the broader operating environment for the Kiwi dairy company.
One leading broker isn’t bullish on the company’s near-term prospects. In fact, according to a recent broker note, Credit Suisse has retained an underperform rating and a $5.50 per share price target. That’s largely thanks to forecast weak demand weighing on near-term earnings.
Uncertainty over A2 Milk’s China sales is the main concern here. Daigou sales channels have dried up, regulatory risk has increased and A2 Milk’s earnings prospects have taken a hit as a result.
According to a recent Bloomberg article, a local Chinese media group reported that “some experts are concerned by marketing that is making mothers choose milk powder over breastfeeding”. Fears of regulator intervention hit local and international infant formula stocks following the news.
That’s because regulatory intervention is likely to be bad news for companies like A2 that rely on China as a cornerstone market for their products. The A2 Milk share price fell lower following the reports which have been a major catalyst for recent underperformance.
Recent earnings downgrades thanks to deteriorating China sales have hurt the A2 Milk share price.
While there have been no recent announcements from the Kiwi dairy group, the operating environment in China is getting tougher.
Investors will be hoping the company can turn things around and reinvigorate its sales strategy sooner rather than later.
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Motley Fool contributor Ken Hall 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 A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.