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. At time of writing, The Blackmores share price was 9.85% lower than Friday’s close, trading around $185.
Why did Blackmores shares do this?
Blackmores shares rallied from $185 on Wednesday 6 April, to $204.76 just before the close of trade on Friday 8 April.
While volume was slightly below average, the run is a little hard to explain.
It wasn’t driven by company news. The S&P/ASX200 was up 0.50% in the same period. And it’s not like BKL is a cheap company to buy.
The stock’s 9% fall at the market open this morning is equally mysterious. However, it makes more sense than the rally, as it could very well be profit taking after the three day rally last week.
While BKL shares are expensive, it’s still a quality company to own — although it’s best suited for people with deep pockets.
The first half results announced in February 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. The expansion into Asian markets with baby formula is likely to grow again throughout this year.
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.
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 our dairy products.
The recent sell off will entice other investors back into the stock, believing in the China infant formula growth story.
The ongoing volatility in BKL is ideal for short term traders as the stock now experiences wild price swings.
But I do think the triple digit gains for BKL are gone. Goldman Sachs currently has a target price of $228 for Blackmores.
If you want this stock, look to buy it around $160–170. If BKL stocks approach $220 per share again, don’t hang in there based on what Goldman Sachs says. Cash out and thank your lucky stars you were part of the Blackmores story once.
for The Daily Reckoning