How the A2 Milk (ASX:A2M) share price tanked 5% in November

Things went from bad to worse last month for the New Zealand dairy producer. Let’s recap.

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Dairy producer A2 Milk Company Ltd (ASX: A2M) has been a thorn in many investors’ portfolios this year, but November was particularly bad.

Last month the share price shed a painful 5.28%. Ironically, it was action from its own angry shareholders that pummelled the stock further.

On 24 November, Shine Lawyers revealed it was pursuing a class action on behalf of aggrieved investors who claim they were misled and deceived.

The group alleged that the New Zealand company breached its disclosure obligations by not updating the market earlier last year about its COVID-19 pandemic woes.

This was the second class action filed against A2 Milk, with Slater & Gordon launching a similar case in October.

What’s the disagreement?

The centrepiece of the argument from the class actions is the financial update given on 19 August 2020. 

“A2 Milk was, or ought to have been, aware that their FY21 guidance, and subsequent representations, did not adequately take into account a number of factors known to A2 Milk,” stated Shine Lawyers.

“[This] ultimately impacted the company’s financial performance, resulting in a 62% drop in market value in FY21.”

That August 2020 update was when the company first revealed the damage that border closures had on its daigou (expatriate) sales channel into China.

Subsequent updates didn’t help either, with A2 Milk shares falling 52.7% over this calendar year.

From scraping the $20 threshold in July 2020, the stock has since sunk more than 70% to close trade on Monday at $5.45.

Are A2 Milk shares a bargain now?

As for the future of A2 Milk, the professionals are absolutely divided on where it will head.

Among 15 analysts surveyed by CMC Markets, 5 of them rate the stock as a buy and 4 rate it as a sell. The remaining 6 think it’s a hold.

Tribeca Investment portfolio manager Jun Bei Liu revealed last month that her team has been buying.

“We’re seeing the share price reflect the bottom… the worst conditions you can expect. It’s only going to get better from here,” she said.

“We think it would deliver a very good return… Nothing’s really changed about this company over the long run.”

While the Chinese business is still down, according to Liu, the English-language markets were doing fine.

“Don’t need to worry about when the share price will bounce back. Because it will.”

Motley Fool contributor Tony Yoo owns shares of A2 Milk. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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