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Is the Treasury Wine share price a buy after a 14% slump in August?

wine glass full of coins
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The Treasury Wine Estates Ltd (ASX: TWE) share price slumped 13.9% lower in August, but is the Aussie company in the buy zone today?

Why is the Treasury Wine share price down 14%?

Geopolitical tensions have been rising for some time now and that has affected Treasury Wine’s valuation in 2020.

China has been dialling up the pressure on Aussie agriculture in recent months with wine the latest product in its firing line.

Just yesterday, China’s Ministry of Commerce announced an investigation into wine subsidies which could put the Treasury Wine share price under pressure.

This follows an anti-dumping probe initiated on 18 August following a similar investigation into Australia’s barley exports.

The coronavirus pandemic has impacted exports and caused a slump in sales. Treasury Wine reported its full-year results in August with net sales revenue falling 6% to $2,649.5 million.

Those soft sales flowed to the bottom line with the Aussie winemaker reporting a 25% drop in net profit after tax to $315.8 million.

Despite rising tensions, Treasury reported a 40% increase in volumes sold to the Chinese market compared to May 2020.

Is Treasury Wine in the buy zone?

It’s been a challenging year for Treasury Wine and August was just the latest setback for shareholders.

In fact, the Treasury Wine share price is down 42.9% in 2020 and lags behind the S&P/ASX 200 Index (ASX: XJO).

However, the Aussie company’s Penfolds and Wolf Blass labels are top-quality. I think this is just a blip on the radar while the long-term outlook remains strong.

Treasury Wine shares trade at a price-to-earnings (P/E) ratio of 25.6 right now with a 3.0% dividend yield.

It’s now trading 10.1% above its 52-week low at $9.25 per share. Despite the current headwinds, I think there could still be long-term upside.

After all, Treasury Wine is still a solid business that generated $315.8 million in profit and paid a full-year 28 cents per share dividend in FY20.

If investors are willing to roll the dice on short-term volatility, I think the Treasury Wine share price could be cheap in September.

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Returns as of 6th October 2020

Motley Fool contributor Ken Hall 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.

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