The a2 Milk (ASX:A2M) share price is down 50% in 6 months: Time to buy?

The A2 Milk Company Ltd (ASX: A2M) share price was well and truly out of form in February.

The infant formula and fresh milk company’s shares lost 16% of their value. This compares to a 1% gain by the benchmark S&P/ASX 200 Index (ASX: XJO).

This latest decline means the a2 Milk share price is now down by almost 50% over the last six months.

Why is the a2 Milk share price sinking?

The a2 Milk share price has come under significant pressure in recent months due to a sudden and shocking deterioration in its performance.

This has been driven largely by COVID-19 pressures, though there are concerns that structural issues could now be impacting its performance.

In respect to COVID-19, after initially benefiting from stock piling at the height of the pandemic, a2 Milk has now seen demand fall off a cliff. This is particularly the case in the daigou channel.

With no international travel, Chinese daigou sellers are not coming to Australia and sending products back to the mainland for profit. This was a lucrative channel for a2 Milk and their absence is being felt.

Management isn’t doing itself any favours either. Not only did a whole range of executives sell down their holdings before these impacts were understood by the market, but they have twice failed to accurately ascertain just how long the daigou recovery will take.

Both have weighed heavily on the a2 Milk share price.

Downgrading the downgraded guidance

Last month when a2 Milk released its half year results, it was forced to downgrade the (downgraded) guidance it provided just two months earlier. It commented:

“The pace of recovery in the daigou/reseller channel and in the CBEC channel has been slower than previously anticipated and the Company now expects revenue to be at the lower end of the previous guidance range.”

“A lower EBITDA margin range is now expected due to lower revenue, higher brand investment, longer daigou/reseller support, movements in foreign currency and adverse channel mix relative to what was anticipated in December.”

The company’s new guidance implies an EBITDA range of NZ$336 million to NZ$364 million for FY 2021. This will be down 34% to 39% from FY 2020’s EBITDA of NZ$549.7 million.

Where next for the a2 Milk share price?

Brokers appear largely divided on where the a2 Milk share price is going from here.

Analysts at Citi have a sell rating and expect it to fall a further 19% to $7.15. Whereas analysts at Morgans have an add rating and have tipped it to rise 17% to $10.40.

Macquarie is sitting on the fence with a neutral rating and $9.75 price target.