One of the worst performers on the All Ordinaries index in August was the Bellamy’s Australia Ltd (ASX: BAL) share price.
The infant formula and baby food company’s shares dropped a disappointing 27% last month.
Why did Bellamy’s shares crash lower?
Investors headed to the exits in their droves last month after Bellamy’s released a full year result that fell short of expectations.
In FY 2019 Bellamy’s posted a 19% decline in revenue to $266.2 million and a 36% decline in normalised net profit after tax to $30.1 million.
Management advised that the weak result was driven by a deeper than expected level of trade destocking in the third quarter, a lower Chinese birth rate, increasing competition in the key China market, and delays to its SAMR accreditation.
In respect to the latter, the company continues to wait for the SAMR accreditation required to sell its key infant formula products directly in the lucrative China market.
Unfortunately, while management remains confident that the registration will be achieved and it will join A2 Milk Company Ltd (ASX: A2M) in the China market again in the future, it has decided to defer its medium-term $500 million revenue target beyond FY 2021 given the ongoing registration process.
For now, though, management still believes it has a large addressable market and headroom for success within the e-commerce market.
In light of this, it is targeting 10% to 15% revenue growth in FY 2020 with a flat EBITDA margin of 17.6%. The majority of this growth is expected in the second half, which is likely to mean a flat first half.
Should you buy shares?
With the current analyst consensus estimate for FY 2020 sitting at ~29 cents per share, Bellamy’s shares are changing hands at approximately 27x forward earnings.
Whilst this could prove to be good value if the company returns to strong growth this year or receives its SAMR accreditation in the near term, for now I would class its shares as a hold and would suggest investors wait for its half year results before considering an investment.
In the meantime, I would stick with a2 Milk Company or consider a small position in Bubs Australia Ltd (ASX: BUB).