Treasury Wine Estates Ltd (ASX: TWE) shares are up 3.40% so far today, continuing an upward trend that they’ve been on since Tuesday this week.
The Melbourne-headquartered wine maker and exporter has been a market darling for years, having transformed itself from a loss-making distributor of cheap wines into a luxury brand, with a focus on the lucrative Chinese market.
Despite that, in the last 18 months the share price has been more volatile, bouncing up and down with little definitive progress either way. More recently we saw the share price plunge from $18.92 on Thursday last week to just $16.40 on Monday.
The recovery since Tuesday hasn’t been as sharp as the initial falls were, but it has still been steep, taking us to $17.84 at time of writing.
So why the sudden fall and recovery? And are today’s rises just a bounce from a too-sharp fall, on opportunistic buying, or is it a sign that Treasury Wine Estates could be returning to the strong performance of its past?
Shares plunge as leadership changes
The recent sharp share price drop, at least, is easy to explain. In an announcement to the ASX before the market opened on Monday, Treasury Wine Estates informed investors that CEO Michael Clarke would be retiring in the first quarter of fiscal year 2021.
Mr Clarke is often given much of the credit for Treasury Wine Estate’s transformation, and share price rise, since taking over in 2014. Mr Clarke’s performance as Managing Director and CEO had been exemplary, with the only real criticism coming from some public attention on his sales of some of his own Treasury Wine Estate shares in the last year and a half. The negative publicity surrounding his occasional selling of parts of his holdings could potentially be blamed for much of the share price volatility in that same time, which has marred an otherwise great stock.
Mr Clarke publicly bemoaned the media attention on his sales of stock, arguing that Australia’s high-taxing environment left him little choice but to sell parts of his holdings to keep up with tax bills, and pointing to the fact that he still had significant ‘skin in the game’ alongside shareholders. A cynical investor might now view these arguments in another light, with the announcement of his upcoming retirement, but it has to be pointed out that even as he exits the position, he continues to hold well over $30 million in shares and rights.
Investing based purely on the actions of company insiders is an uncertain science. We can never be entirely sure what the true motivations are behind buying or selling by significant shareholders, only of the facts of their holdings that must be reported to the ASX. However, Mr Clarke’s significant investment in Treasury Wine Estates is evidence that, even as he leaves the company, he remains confident about its future.
Not that much has actually changed
It’s clear that investors weren’t pleased to hear of the well-liked CEO’s departure from Treasury Wine Estates, especially because of his public image as the leader that helped turn the company into the powerhouse it is today. However, the winemaker’s position as a luxury brand provider, with strong sales in growing markets, remains. It has a respectable dividend yield of 2.13%, and aside from a new CEO to take over in the future, little has actually changed.
In my opinion, investors should seriously consider snapping up shares at the current, slightly suppressed price. If the company’s recovery continues, you could benefit from the rise and be left holding shares in a profitable exporter.
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Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. 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.