Now that the August reporting season is coming to a close, can these three ASX 200 growth shares recover from their share price dips?
A2 Milk Company Ltd (ASX: A2M)
The a2 Milk share price fell by more than 10% on the day of its full year results. There were some areas of slight concern despite what was otherwise a pleasing result. The company continues to invest heavily in marketing efforts driven by increases in advertising spend in China and the US. Marketing for the full year is expected to increase by 83.7% to $135.3 million. Furthermore, the US segment has seen revenue grow by over 100% during each of the last three years, but struggled to bring profit to the table. The US business posted an EBITDA loss of $44.0 million resulting from increased investment into distribution growth and brand awareness. a2 also announced its withdrawal from the UK market as business conditions proved challenging and lacking in scale.
The market is short sighted and the rise in expenses and withdrawal from UK is seen as a negative. This negative sentiment, combined with the weak general market, should see a2 Milk shares go lower in the short to medium term, but I believe this period may represent a transitory phase for a2, as it ramps up expenses and refocuses the business on its ANZ, Asia and US segments.
Cleanaway Waste Ltd (ASX: CWY)
Cleanaway also saw its share price fall by more than 10% on the day of its full year earnings. The company delivered strong numbers across the board with underlying revenue up 34.8%, EBIT rising 44.7% and NPAT up 43.1%. The reason behind the fall was the company’s FY20 commentary, which cited the China National Sword policy increasing sorting costs and variability in pricing for recycled commodities. China’s new waste import policy now bans various plastic, paper and solid waste being imported into the country for processing.
The waste sector will need to innovate and adapt to rising costs. Given Cleanaway’s hefty valuation, uncertainty surrounding rising costs and weakness in the general market, I would stay away from Cleanaway shares.
Blackmores Ltd (ASX: BKL)
Blackmores is now a shadow of its former self as it reported a 1% rise in revenue and 19% fall in underlying full year NPAT. The company cited further challenging trading conditions and expecting its first half FY20 performance to be below the prior corresponding period. Blackmores is showing no sign of a turnaround story and its earnings trajectory continue to go lower. I believe Blackmores shares will continue to make new lows for the foreseeable future until it can show some stability in China sales and growth.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. 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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