The A2 Milk Company Ltd (ASX:A2M) share price is down 70% from its 52-week high. Is this a buying opportunity for investors?
The post Is the A2 Milk (ASX:A2M) share price cheap? Here’s what brokers think appeared first on The Motley Fool Australia. –
On Monday the A2 Milk Company Ltd (ASX: A2M) share price continued its disappointing run with another sizeable decline.
The fresh milk and infant formula company’s shares plunged 13% to $6.10.
This means the a2 Milk share price is now down a whopping 70% from its 52-week high.
Why did the a2 Milk share price crash lower?
Investors were selling the company’s shares on Monday after it downgraded its FY 2021 guidance for a fourth time.
Back in August 2020, a2 Milk was guiding to “strong revenue growth” on the NZ$1.73 billion it achieved in FY 2020 and an EBITDA margin of 30% to 31%.
Whereas management now expects revenue of NZ$1.2 billion to NZ$1.25 billion with an EBITDA margin of 11% to 12%. This implies EBITDA of just NZ$132 million to NZ$150 million, which will be down 73% to 76% year on year.
What do brokers think?
Given the significant weakness in the a2 Milk share price, investors will no doubt be wondering whether its shares are cheap now. Well, opinion is divided in the broker community.
One broker that doesn’t think its shares are cheap is Credit Suisse. This morning the broker retained its underperform rating and cut its price target to $5.00. It estimates that its shares are changing hands for 34x FY 2022 earnings at present.
Morgans is a little more positive. It has retained its add rating but slashed its price target to $6.65. Based on its forecasts, it estimates that its shares are trading at 26x FY 2022 earnings.
Elsewhere, Bell Potter has retained its buy rating and cut its price target to $8.50, Morgan Stanley has a $7.10 price target, and UBS has a buy rating and lofty NZ$13.50 (A$12.52) price target. All three targets offer meaningful upside from the current a2 Milk share price of $6.10.
In respect to the latter note, UBS believes the actions management is taking will restore inventory to healthy levels by the first quarter of FY 2022. It appears optimistic that this will avoid any brand damage.
Time will tell which broker makes the right call.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
- ASX 200 jumps, A2 Milk sinks, Crown rises
- Why a2 Milk, American Pacific Borate, Appen, & Incitec Pivot are tumbling lower
- Why the A2 Milk (ASX:A2M) share price is crashing 15% lower today
- ASX 200 up 1.1%: A2 Milk crashes, Crown-Star $12bn merger, Woolworths update
- A2 Milk (ASX:A2M) share price in danger after downgrading guidance again
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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.