Are Blackmores Limited shares headed back to $200?

Credit: Blackmores

Nutrition and supplement producer Blackmores Limited (ASX: BKL) looks set to enjoy a strong afternoon of trade today after the release of its report for the third quarter of 2016. Here are some of the highlights:

(All figures are for the nine months to 31 March 2016, unless stated otherwise)

  • Sales grew 63% to $531 million
  • Net Profit After Tax rose 145% to $75.6 million
  • New record quarter for sales and profits, with every region experiencing strong growth
  • Excluding Chinese consumers, Blackmores sales are growing 14% per annum
  • First release of baby food into Australian pharmacies in January, launch into Australian grocers planned for next quarter
  • Blackmores is increasing factory capacity and sourcing additional raw materials

So What?

Strong growth has been overshadowed in recent weeks following the announcement of additional regulation and clarification of existing rules regarding product imports into China. Management at Blackmores and (potentially) similarly affected company Bellamy’s Australia Ltd (ASX: BAL) have downplayed the impact on their sales, and Blackmores today stated it had been granted approval to sell additional ingredients in China.

Blackmores’ baby formula and Bioceuticals product sales could be set to ramp up as well, with recent new product launches (Bioceuticals) and the ongoing roll out of baby formula to Australian retailers.

A price tag of $150 may seem stiff but after today’s results, Blackmores now trades for 34 times its earnings for the 9 months to March 2016 – and its full year Price to Earnings (P/E) ratio will be lower. It’s a different kettle of fish, but this compares favourably to some other ASX growth favourites like Bellamy’s (forecast P/E of 47) and Domino’s Pizza Enterprises Ltd. (ASX: DMP), which has a forecast P/E of 63.

One key risk is the scarcity and rising price of some ingredients, given the recent ramp up in demand. Although Blackmores is working to mitigate this, sales could also be slowing. At the half-yearly report in February, sales were up by 65% and profits by 159%. Even so, Blackmores could achieve far less growth than this next year and still go on to justify today’s price tag.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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