One of the most disappointing S&P/ASX 200 Index (ASX: XJO) shares over the past few months has to be the A2 Milk Company Ltd (ASX: A2M). A2 Milk shares have had an absolute clanger over the past year or so, following years of rapidly compounding returns.
Just for a refresher, A2 Milk climbed from 56 cents a share in April 2016 to a high of $20.05 a share in July last year. That's a climb worth around 3,500%, enough to turn a $1,000 investment into almost $36,000.
But how the mighty have fallen. Since peaking at over $20 a share in July, A2 Milk has fallen quickly, and dramatically, out of favour with investors. Today, the A2 Milk share price sunk as low as $5.44 — the lowest level the dairy company has plumbed since mid-2017. From its peak last year, that's a fall of over 72%. 72 cents in every dollar gone. Ouch.
Why did this happen? Well, everything that could have gone wrong at A2 seems to have gone wrong – Murphy's Law at its finest.
Firstly, the coronavirus pandemic dried up A2's lucrative daigou export channel. This is where customers buy A2 Milk products and resell them in China. Obviously, with the borders being shut and all, it's a lot harder for customers to get these products to China these days. And the escalating diplomatic spat between the Australian government and the Chinese government isn't helping matters at all.
A2 shares suffer from all sides
But the company has been unable to right its ship, as it were. Just this week, the company was forced to downgrade its FY2021 guidance for the fourth time. It also flagged inventory issues, which might necessitate heavy discounting to resolve. It wasn't pretty – A2 Milk shares lost 15% on the news.
So how much has this debacle cost investors? Well, a lot. Anyone who has bought A2 shares after September 2017 is probably underwater for a start. A2 Milk has never paid a dividend, so there's no comfort to be found down that avenue either.
If an investor bought $10,000 worth of A2 Milk back in July last year at the company's high point, they would only have roughly $2,800 left of their position today. Even if an investor 'bought the dip' back in December, when A2 lost more than 20% in one day after one of its many FY2021 downgrades, they would be in a world of pain. A $10,000 position back then would only be worth ~$5,520 today.
Can the compnay turn things around?
But perhaps investors have been too bearish on A2. If sentiment turns too viciously, or emotionally, against a company, it can often create a value-driven buying opportunity. And high-growth shares like A2 Milk tend to inherently come with a lot of volatility. So what do the brokers think?
Well according to CommSec, investment bank Goldman Sachs thinks this might be the case. It recently downgraded A2 from its old price target of $9.69 a share but is still aiming for $6.96, albeit with a 'neutral' rating. That's still a good 25% higher than the current A2 share price. Yesterday, my Fool colleague James Mickleboro also reported that broker Morgans has a $6.65 price target for A2 Milk.
So some reckon we may have found a bottom for the A2 Milk share price and things can get better from here. Investors will no doubt be hoping that they're right.
