Why the A2 Milk (ASX:A2M) share price hit a multi-year low today

The A2 Milk Company Ltd (ASX:A2M) share price is under pressure again on Thursday and dropping to a multi-year low…

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The A2 Milk Company Ltd (ASX: A2M) share price is edging lower today.

In early afternoon trade, the infant formula and fresh milk company's shares are down 0.5% to $7.68.

At one stage today, the a2 Milk share price hit a multi-year low of $7.58.

Why is the a2 Milk share price edging lower?

Investors have been selling the company's shares today after one of its biggest supporters began to doubt its recovery.

According to a note out of Morgans, the broker has downgraded a2 Milk's shares to a hold rating from add and slashed the price target on them by almost 20% to $8.34.

The broker made the move after its research indicated that prices in China are not improving and retailers in the local market are discounting inventory ahead of use by dates. Morgans fears that its excess inventory could be a bigger problem that it previously anticipated.

Based on this, the broker believes that a2 Milk is unlikely to achieve its guidance for FY 2021. This would be bitterly disappointing given how the company has downgraded its guidance numerous times since it was first given to the market.

What else is weighing on its shares?

Morgans isn't the only broker talking about a2 Milk today. This morning Citi reiterated its sell rating and $7.15 price target on the company's shares.

It also has concerns over discounting as excess inventory nears its use by dates. But as well as this, the broker's research appears to indicate that Chinese consumers are now preferring domestic brands for consumer products. This includes athletic brands, vitamins, and, unfortunately, infant formula. It feels this could impact demand in the key market.

For the same reason, the broker retained its sell rating and 35 cents price target on Bubs Australia Ltd (ASX: BUB) shares.

Following today's decline, the a2 Milk share price is now down approximately 59% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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