The Blackmores Limited (ASX: BKL) share price closed at $96.70 on Friday afternoon, down 30.08% in the last 6 months.
The company achieved exponential success between 2014 – 2016 due to demand from Chinese consumers, but this growth driver has waned.
Is now the time to buy Blackmores shares?
Blackmores is an Australian natural health company that sells vitamins, herbs, minerals and nutrients. Recently, it's been facing an uphill battle in a market with heavily discounted products.
The company reported a flat 0.4% increase in net profit after tax of $34.3 million in its HY report, and management doesn't expect any improvement for the second half. This is disappointing as Blackmores traditionally delivers stronger returns in the latter half of the year.
While its interim profits remained flat, the company's main competitor skyrocketed ahead. Swisse sales grew a whopping 63% in China, while Blackmores slowed from 30% in the first quarter to -14% in the second. This was due to having expanded distribution in China too rapidly without an apt sell-through rate.
To top it off, former CEO Richard Henfrey, resigned just 18 months into his role after Blackmores' poor interim results which drove the share price down 25%.
However, leadership updates announced earlier this week sparked some investor confidence as Marcus Blackmore takes up the reins. Following the announcement, the share price peaked at $100.01 on Tuesday before falling back down to $95.45 at close on Thursday. Mr Blackmore stated that he hopes a permanent CEO will be in position by EOFY.
Foolish Takeaway
Heading into its HY earnings call, analysts anticipated FY net profit after tax to be $77 million. Had this been the case Blackmores would've had a P/E ratio of over 30x rather than its current 23.9x multiple. Nevertheless, the company is still priced for growth.
Before buying, I want to see more evidence of how the company will get 'lean and mean' – as Mr Blackmore describes it. Given that its main rival, Swisse, is dominating the market that Blackmores had achieved explosive growth in, I'd keep this one on hold.
I'll be waiting for further announcements post-EOFY to see (1) who's in the driving seat and (2) if the company demonstrates a new market strategy for China or any new revenue channels.
