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Is the Blackmores (ASX:BKL) share price in the buy zone yet?

Healthy women holding bottle of vitamins and mobile phone in kitchen
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The Blackmores Limited (ASX: BKL) share price is on form for once on Monday.

In afternoon trade the health supplements company’s shares are up 1.5% to $70.15.

Despite this gain, the Blackmores share price is still down 27% from its 52-week high.

Is this a buying opportunity?

Although the Blackmores share price is trading notably lower this year, I wouldn’t be in a rush to invest just yet. This is due to its uncertain performance and the high multiples its shares are trading on.

This is a view that I share with analysts at Goldman Sachs. This morning the broker retained its neutral rating and cut its price target on Blackmores’ shares to $71.00.

It notes that the company is going through a major transformation at present.

Goldman explained: “BKL is progressing through a period of significant change as it vertically integrates production through its Braeside manufacturing facility, offloads underperforming assets (Global Therapeutics) and reestablishes its growth model into China and more broadly through Asia.”

This transformation is weighing on its earnings momentum and is expected to continue doing so in the near term.

However, based on the current Blackmores share price, Goldman suspects that the market is pricing in a much swifter turnaround.

It said: “Earnings momentum remains steadfastly negative, but growth expectations are strong and BKL’s PE remains elevated suggesting the market is pricing in a portion of a turnaround. We now forecast an underlying FY21 EBITDA of A$69.1mn and EPS of A$1.58.”

This means the Blackmores’ share price is trading at a lofty 44x FY 2021 earnings right now. And looking even further ahead, the broker is forecasting earnings per share of $2.21 in FY 2022. This equates to a multiple of 32x FY 2022 earnings for its shares.

In light of this, I would suggest investors either wait for a better entry point or for the company’s performance to improve.

In the meantime, I would sooner buy A2 Milk Company Ltd (ASX: A2M) shares. Goldman estimates that they are changing hands at 28x estimated FY 2021 earnings and 24x estimated FY 2022 earnings.

Where to invest $1,000 right now

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. 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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