Here’s why the A2 Milk (ASX:A2M) share price is down 64% in 12 months

It has been a disappointing 12 months for this former market darling…

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Although the A2 Milk Company Ltd (ASX: A2M) share price has been a solid performer over the last 30 days, it is still down materially over the last 12 months.

Since this time last year, the embattled infant formula and fresh milk company’s shares have lost 64% of their value.

This makes the a2 Milk share price the joint worst performer on the benchmark S&P/ASX 200 Index (ASX: XJO) over the period along with Appen Ltd (ASX: APX).

Why has the a2 Milk share price been smashed?

Investors have been selling down the a2 Milk share price over the last 12 months after it revealed a significant deterioration in its performance.

This deterioration was driven by COVID-induced headwinds in the daigou channel, stock piling, and poor inventory management.

After initially benefiting from stock piling at the height of the pandemic, a2 Milk has now seen demand fall off a cliff. This led to the company writing off a massive NZ$90 million of its inventory in May.

This weakness ultimately led to countless earnings guidance downgrades in FY 2021, damaging management’s credibility when it comes to forecasting.

What else?

Also weighing on the a2 Milk share price are concerns that the weakness in the daigou channel may be structural and unlikely to ever return to former levels. This is due to Chinese consumers’ growing preference for domestic brands ahead of international brands.

In addition to this, last year the company reported significant insider selling from key executives, hurting investor sentiment. Fortunately for these executives, the selling happened just before the deterioration in its performance occurred, allowing them to sell at prices materially higher than where a2 Milk shares trade today.

Is this a buying opportunity?

Unsurprisingly, opinion is largely divided on whether the underperformance of a2 Milk shares is a buying opportunity for investors.

Analysts at Bell Potter believe its shares are good value. They have a buy rating and $8.50 price target on them.

Whereas the teams at Citi and Credit Suisse remain very bearish. They have the equivalent of sell ratings and $5.85 and $5.50 price targets. This compares to the latest a2 Milk share price of $7.13.

Should you invest $1,000 in A2 Milk right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Appen Ltd. The Motley Fool Australia owns shares of and has recommended Appen Ltd. The Motley Fool Australia 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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