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Key Points
- A2 Milk shares are down almost 50% over last 12 months
- COVID-19 disruption has plagued the company
- Brokers Citi and Jarden see value in the A2 Milk share price
The A2 Milk Company Ltd (ASX: A2M) share price has had a year to forget. COVID-19 has severely disrupted the infant formula and fresh milk company, causing logistical challenges between Australia and China.
This has weighed heavily on investor sentiment, causing a sell-off in A2 Milk shares.
During the past 12 months, the embattled company's shares lost around 48.85%, making it one of the worst performers across the sector. By comparison, its rival Bubs Australia Ltd (ASX: BUB)'s shares lost 30.83% across the same timeframe.
At Friday's market close, A2 Milk shares closed 1.14% higher to $5.32 apiece. It's worth noting the company's shares hit a multi-year low of $4.97 on 24 January, before slightly rebounding.
Why did the A2 Milk share price stumble?
Cross-border trade issues have undoubtedly led to the deterioration of the A2 Milk share price.
As such, demand/supply volatility has caused excess inventory levels, along with a significant reduction in the growth of the Chinese infant nutrition market. It seems this trend is continuing with the release of China's 2020 birth numbers which showed a fall in the birth rate.
In response, A2 Milk recognised stock write-downs and deliberately slowed down sales in the fourth quarter of FY21. This is due to the significant decline in its English label infant milk formula (IMF) sales through both daigou/reseller and e-commerce channels.
In addition, the company increased brand investment to drive consumer demand and bolstered its leadership team. It has reorganised its Asia-Pacific division for enhanced focus on key business opportunities.
Management noted that the market landscape has experienced unprecedented change over the past 12 months, requiring the company to adapt.
Is now the right time to buy?
A number of brokers believe that the A2 Milk share price is currently trading at a bargain price.
In mid-January, the team at Citi cut its 12-month price target for the A2M Milk share price by 2.1% to $7.15. Based on Friday's closing price, this implies an upside of 34.4% for investors.
On the other hand, analysts at Jarden also lowered their outlook on the company's shares by 3% to NZ$6.40 (A$6.00). While the broker reduced its assessment on A2 Milk, it still sees value in the fresh milk and infant formula company. The price target represents a potential upside of 12.8% from where it trades today.
