The A2 Milk Company Ltd (ASX:A2M) share price is down 42% over the last 12 months. Where are a2 Milk’s shares heading from here?
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The A2 Milk Company Ltd (ASX: A2M) share price has been well and truly out of form over the last 12 months.
During this time, the infant formula company’s shares have lost 42% of their value.
Why is the a2 Milk share price underperforming?
The a2 Milk share price has come under significant pressure over the last 12 months due to significant weakness in the daigou channel.
In addition, management’s failure to ascertain just how long this weakness would go on for has also weighed on its shares. This has led to the company downgrading its guidance for FY 2021 on two occasions.
Is this a buying opportunity?
Analysts at Goldman Sachs aren’t sure that now is the time to invest and have just held firm with their neutral rating and $10.30 price target.
Commenting on its recent half year results, Goldman said: “Although management’s guidance revision from Dec 2020 included a weaker CBEC channel, the decline was well ahead of GSe at -35.5%. EBITDA margins were impacted adversely by the mix impact from higher sales of lower margin China label products. Guidance for FY21 has been revised down by c. A$28-85.5mn at the top and bottom end of the prior range respectively on EBITDA.”
What could get the a2 Milk share price heading higher?
Goldman notes that there is upside risk if a2 Milk experiences a quicker than expected recovery in the daigou channel.
It also suspects that the company’s new CEO could provide a strategy update before the end of the financial year. If the market likes what it sees, it feels its shares could start rising.
Goldman explained: “Given his range of experience and capabilities, we believe incoming CEO, David Bortolussi, has the potential to make a material contribution to A2M’s strategic execution and, potentially, longer term performance. However, the strategic redirection is unlikely to be revealed until the new CEO has had some time in the role. We anticipate a strategy update at some stage in 4Q21, which could present as a catalyst for the stock.”
For now, though, Goldman appears to expect the a2 Milk share price to trade around its current level until the next catalyst appears. Hopefully for shareholders, this time it will be a positive one.
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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.