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Is the Bega Cheese share price a tasty buy?

The Bega Cheese Ltd (ASX: BGA) share price is down more than 10% so far this year, but is now the time to buy or will it slide further?

Why the Bega Cheese share price is under pressure

According to an article in the Australian Financial Review (AFR), analysts are forecasting a tough year for the Aussie dairy group with conditions set to worsen.

The Bega share price fell 10% in 2 days back in early August as the company slashed its earnings guidance for its full-year FY2019 results.

It’s no secret that conditions for Aussie dairy farmers remains tough with low farmgate milk prices and ongoing supplier troubles within the industry.

As mentioned in the AFR, dairy giant Fonterra is still mulling its operating future in Australia as it looks to focus on its business closer to home in New Zealand.

While consolidation can be a sign of a troubled industry, it could also represent a great opportunity for Bega to capitalise on change and strengthen its position as an industry leader in 2020.

Are Bega shares good value?

At the time of writing, the Bega share price was trading at $4.45 per share after a strong start to the day’s trade.

Bega is a strong dividend stock within the ASX 200 and is currently paying its shareholders a tidy 2.47% per annum.

With a market cap of $951 million and a price to earnings (P/E) ratio of 78x, I think Bega might be a little overvalued given the current headwinds in the dairy industry.

The real growth within Australian dairy at the moment looks to be in the infant formula companies like A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

With strong demand coming out of China and maturing operations, I think I’d be steering clear of Bega shares in favour of alternatives like A2 Milk for share price growth.

Other than the Aussie dairy companies, these 3 ASX income stocks could be in the buy zone before the year is out.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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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