What’s Wrong with Blackmores?

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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,
The Daily Reckoning

Shae Russell

Shae Russell

Shae is editor of the Australian version of Jim Rickards’ acclaimed Strategic Intelligence newsletter. Jim is a best-selling author…a trusted friend of the CIA, the Federal Reserve and the world banking system. He also helped the US Department of Defense through its first-ever currency war games scenario. With Jim’s insights and analysis, Shae brings you investment tips and recommendations to help you create and preserve wealth through the coming monetary collapse.
Shae Russell

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