After being amongst the worst performers on the market for much of the year, the Blackmores Limited (ASX: BKL) share price has returned to form this month.
Since the start of September the health supplements company's shares have surged 19% higher.
Why is the Blackmores share price charging higher this month?
There appears to have been a couple of catalysts for Blackmores' strong gain this month.
The first is bargain hunters swooping in after its shares were crushed in August. Last month the Blackmores share price crashed to a multi-year low of $63.64 after the release of a bitterly disappointing full year result.
In FY 2019 Blackmores fell short of the market's low expectations when it reported a 1% increase in full year revenue to $610 million and a 24% decline in full year net profit after tax to $53 million.
A key reason for its underperformance was its China business. FY 2019 sales in the China segment (key export accounts and in-country sales) were down 15% and segment EBIT dropped by a massive 40%. Management blamed this on changes in e-commerce laws and rising costs from increased investments in its brand and the expansion of its in-country capabilities.
Unfortunately, this is not expected to be a quick fix and management warned that trading conditions in China are expected to remain weak during the first half of the new financial year. As a result, it expects its overall first half result to be down on the prior corresponding period.
Some investors appear to believe that the selloff was overdone and have been picking up shares this month.
Another catalyst for this rise was news that Bellamy's Australia Ltd (ASX: BAL) has received a takeover approach from Hong Kong-listed China Mengniu Dairy Company. The leading Chinese dairy product manufacturer offered $13.25 per share offer, valuing Bellamy's at $1.5 billion.
With Blackmores' shares down significantly this year, some investors may believe it could also be an attractive takeover target due to its exposure to the massive China market.
Is it too late to invest?
With Blackmores' shares now changing hands at just under 27x trailing earnings, I think they are looking expensive given its subdued growth outlook.
In light of this, I wouldn't be a buyer of its shares at this point, no matter how tempting it might be to invest in hope of a takeover approach. After all, if one does not materialise, its shares could start to edge lower again.
