Why the A2 Milk (ASX:A2M) share price is souring again today

2021 has gone from bad to worse for A2 Milk.
The post Why the A2 Milk (ASX:A2M) share price is souring again today appeared first on The Motley Fool Australia. –

In all too regular news for shareholders, the A2 Milk Company Ltd (ASX: A2M) share price is having a bad day.

At the time of writing, shares in the company are trading for $5.70 – down 0.52%. For context, the S&P/ASX 200 Index (ASX: XJO) is currently 0.28% lower.

One possible reason may be the S&P Dow Jones Indices quarterly rebalance of ASX shares. S&P Dow Jones is a division of S&P Global Inc (NYSE: SPGI).

Let’s take a closer look.

ASX quarterly rebalance sees A2 Milk share price fall

Periodically, S&P will re-examine all shares in the ASX and will recalibrate their indices, like the S&P/ASX 200 Index (ASX: XJO) to reflect changes in the values of different companies.

Unfortunately for A2 Milk, it has been shunted out of the S&P/ASX 50 Index (ASX: XFL) due to its declining value. Energy giants AGL Energy Limited (ASX: AGL) and Ampol Ltd (ASX: ADL) were also booted out of the largest 50 public companies in Australia. Woolworths Group Ltd (ASX: WOW) also lost its place in the ASX 50 after its demerger with Endeavour Group Ltd (ASX: EDV).

For those paying close attention to the A2 Milk share price, today’s unceremonious withdrawal of the company from the ASX 50 shouldn’t come as much of a surprise. Over the last 12 months, shares in the New Zealand based dairy company have plummeted 66.2%. Year-to-date it’s a smaller but still disastrous 51.2% decline for A2 Milk shares.

The COVID-19 pandemic has hit the dairy company hard. The closure of Australia and New Zealand’s international borders closed off an extremely lucrative market for A2 Milk – the daigou channel.

According to the Cambridge English dictionary, a daigou is “someone who is outside China who buys goods for someone who lives in China.” Daigou buyers are usually, but not always, Chinese nationals who have travelled abroad for whatever reason. They purchase in demand goods in China that are not readily available in the People’s Republic and import them into the country at a premium. Another ASX listed company that has relied heavily on daigou channels in the past is Blackmores Limited (ASX: BKL).

Foolish takeaway

As Motley Fool has previously reported, expert opinion on the A2 Milk share price is very evenly divided. Bells Porter analysts say the company is a buy. Goldman Sachs, on the other hand, rates the company as a hold.

A2 Milk has a market capitalisation of approximately $4.3 billion.

The post Why the A2 Milk (ASX:A2M) share price is souring again today appeared first on The Motley Fool Australia.

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More reading

ASX quarterly rebalance: A2 Milk dumped from ASX 50, Nuix kicked out of ASX 200

Top broker says A2 Milk (ASX:A2M) share price is a buy
When was the best ever day on the A2 Milk (ASX:A2M) share price chart?
A2 Milk and Zip were among the most traded ASX shares last week

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

Motley Fool contributor Marc Sidarous owns shares of Endeavour Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended S&P Global. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. 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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