In morning trade the Treasury Wine Estates Ltd (ASX: TWE) share price has been amongst the worst performers on the market.
At the time of writing the wine company's shares are down almost 10% to $16.28.
Why are Treasury Wine Estates' shares sinking lower?
This morning the company released an announcement responding to media reports in the AFR alleging that it is faced with a supply glut of its own making in China.
The report suggests that distributors in China are sitting on upwards of three years' worth of low-end stock. These include brands such as Rawson's Retreat, Wolf Blass, and a selection of cheaper Berringer products. This is believed to have led to deep discounting by wholesalers and retailers in China.
However, Treasury Wine Estates has stated that it is "comfortable with the sustainability of its operating model in China, to build a portfolio of brands, and of its disciplined approach to managing inventory levels with its customers."
Before warning that investors should be careful about listening to feedback from selected customers in China.
This is because the company's "disciplined and rigorous approach to working with customer partners to sell a portfolio of TWE's wines, as it does in every region around the world, may underpin motivations for underperforming customers, who are not growing with the Company, to comment publicly."
However, unrelated to this, management has confirmed that it is experiencing a slowdown on the clearance of imports into China and delays for some of its Australian Country of Origin shipments being cleared by the General Administration of Customs China to replenish its inventory levels.
This has been caused by new and additional verification requirements which came into place last month. Pleasingly, the company doesn't believe this slowdown will be a long-term issue.
Should you buy the dip?
As we saw with A2 Milk Company Ltd (ASX: A2M) yesterday and WiseTech Global Ltd (ASX: WTC) in February, growth shares that trade on nosebleed valuations will often plunge notably lower if their growth fails to live up to expectations.
Because of this, I can't say I'm overly surprised to see its shares drop lower today on the back of these reports. However, I do think that the level of decline could be an overreaction, which could make this a buying opportunity for investors. Though it may be best to let the dust settle first.
