What’s Wrong with Blackmores?

What happened to the Blackmores share price?

Blackmores Limited [ASX:BKL] develops, sells and markets health products for people and animals. These products include vitamins, herbal and mineral nutritional supplements. Through Bega Cheese, BKL recently expanded their range to include baby formula. Blackmores’ shares were up 2.82% at the time of writing (1:40pm AEST), trading around $160.80.

Why did Blackmores’ share price do this?

Since announcing spectacular half year financial results, BKL shares have plummeted. On Thursday, 25 February, the share price was trading at $168, peaking at $174 following the announcement. Since then, it’s fallen to its current price.

Why?

I wasn’t joking when I said the first half results were spectacular. Net profit doubled to $48.3 million. Revenue grew 65.5%, to $341.1 million. And the interim dividend was $2 per share.

Asian sales rose 73%, or $60.9 million. Expansion into Asian markets with its baby formula range is likely to grow again this year.

So why don’t investors like this stock?

BKL has been trending down since the start of the year, when the stock peaked at $220 in early January.

Since reaching that point, investors have sold out of Blackmores. This could largely be attributed to profit taking. BKL gained an extraordinary 527% over 2015. But, with a share price at $220, BKL had a price to earnings ratio of 80 times. This is too high.

In saying that, many investors may have seen the selloff from $220 as their cue to get out, in spite of the brilliant financial results.

What now for Blackmores Ltd?

I don’t think the growth story is over for Blackmores just yet.

Expanding into infant formula and selling into the Chinese market is likely to increase the company’s revenue over the next two years.

In addition, Bega Cheese and Blackmores have confirmed they have other products in the works to capitalise on the international appetite for Australian dairy products.

The recent selloffs should entice other investors back into the stock, especially those motivated by the growing demand for infant formula in China.

But I do think triple digit gains for BKL have come to an end. Goldman Sachs has set a target price of $228 for Blackmores.

If you buy today, and the BKL stock approaches $220 per share again, don’t hang in there based on what Goldman Sachs says. Cash out and thank your lucky stars you were once part of the Blackmores growth story.

Shae Russell,
Markets and Money


Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.


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