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The Blackmores share price is down 27% YTD: is it a buy?

At a high level, Blackmores Limited (ASX: BKL) and similarly China facing companies have been under pressure due to reports of slowing growth in the Chinese economy. Although companies like Blackmores, Bellamy’s Australia Limited (ASX: BAL) and Treasury Wine Estates Ltd (ASX: TWE) operate in multiple markets, China is seen as a potential growth driver with their other markets being more mature. If the Chinese economy grows at a slower rate, the emerging middle class that consume Blackmores products will also grow more slowly.

A closer look at Blackmores

According to the company’s website, Blackmores is “Australia’s leading natural health company. We develop high quality products and services that deliver a more natural approach to health, based on our expertise in vitamins, minerals, herbs and nutrients.” This high quality is accepted within the market, with Blackmores being awarded Reader’s Digest Australia’s Most Trusted Brand for vitamins and supplements for 11 years in a row. This has helped the company grow locally and throughout Asia.

Where’s the sales growth?

In total, overall sales for the company were up 6% financial year-to-date, as at 31 March 2019. 

To break this down, Blackmores largest market remains Australia and New Zealand where they experienced modest 3% sales growth during the same period. However, for the quarter ended 31 March 2019 Blackmores estimates that sales to China were down 6% compared to the same period last year. The reason for the estimation is that the company sells both directly to China and through Chinese consumers in Australia. 

Although this is somewhat disappointing, investors should remember that although growth may be slowing, the Chinese economy is still growing faster than a lot of other economies. Over the long term, the theme of a burgeoning middle class should continue to be a tailwind for strong brands like Blackmores.

Throughout the rest of Asia the company performed well in its relatively small markets. Sales were up 18% in Hong Kong, 32% in Malaysia, and 99% in Indonesia.

New CEO

Blackmores are rolling out a business improvement program that aims to save $60 million over 3 years. Yesterday the company announced the appointment of their new CEO Alastair Symington. He will take charge from 1 October and take over from interim CEO Marcus C Blackmore AM. Mr Symington has a strong history operating throughout Asia and I would expect him to roll out the savings program with a focus on growing sales in China.

Foolish bottom line

Blackmores has performed well over the long term, thanks in part to its best-in-class brand. At current prices, the stock appears to offer a good balance of income yield and potential growth at a reasonable price.

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Motley Fool contributor Proutlb95 has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Treasury Wine Estates Limited. The Motley Fool Australia has recommended 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 Scott Phillips.

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