Why the A2 Milk (ASX:A2M) share price has underperformed the ASX 200 in the last year

Let’s take a closer look.
The post Why the A2 Milk (ASX:A2M) share price has underperformed the ASX 200 in the last year appeared first on The Motley Fool Australia. –

The past year has not been kind to the A2 Milk Company Ltd (ASX: A2M) share price.

In the past 52-weeks, shares in the infant formula company have tanked more than 65%.

By comparison, the broader S&P/ASX200 Index (ASX: XJO) has powered 26% higher during the same period.

Let’s take a look at why the A2 Milk share price has underperformed in the last year.

Why has the A2 Milk share price struggled in the last year?

Shares in A2 Milk have had a spectacular fall from grace in the last year.

The one-time market darling has faced unprecedented challenges and uncertainty as a result of the COVID-19 pandemic.

With Australia’s international borders closed, A2 Milk’s vital daigou channels were crippled.

In addition to a halt in its key supply channel, the company has also faced waning consumer demand and competition in China.

As a result of subdued demand, A2 Milk has also had to overcome excess inventory problems.

The full effect of these challenges was reflected in the company’s recent full-year report for FY21.

How did A2 Milk perform in FY21?

Late last month, shares in A2 Milk continued their decline following a dour FY21 result.

For the full-year, the company reported a 30% decline in revenue to NZ$1.21 billion.

In addition, the former market darling noted a 77.6% reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$123 million.

Other highlights from A2 Milk’s report included;

Stock write-downs of NZ$109 million
Net profit after tax down 79.1% to NZ$80.7 million
Cash balance of NZ$875.2 million

A2 Milk advised investors that the company would review its growth strategy, given the rapid changes to its market.

Outlook for the A2 Milk share price

A2 Milk’s management noted an uncertain outlook on the company’s growth.

With the Chinese formula market a key driver of A2 Milk’s earnings, management noted that falling birth rates could weigh heavily on the company’s outlook.

The company also cited the need to address its excess stock with inventory or FY21 sitting at $NZ112.2 million.

In light of these circumstances, its management stressed the importance of innovating and expanding its product portfolio.

As a result of these headwinds, A2 Milk expects revenue for the first half of FY22 (including MVM) to be marginally lower than the first half of FY21.

At the time of writing, shares in A2 Milk have bounced 2% higher today, trading at around $5.85.

The post Why the A2 Milk (ASX:A2M) share price has underperformed the ASX 200 in the last year appeared first on The Motley Fool Australia.

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Motley Fool contributor Nikhil Gangaram owns shares of 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. 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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