It has been a tough week for the A2 Milk Company Ltd (ASX: A2M) share price.
Since this time last week, the infant formula company's shares have lost 9% of their value.
This leaves them trading at $5.41, which means they are now down over 20% since the start of the year.
Image source: Getty Images
Why is the A2 Milk share price sinking this week?
Investors have been hitting the sell button this week after the company released a trading update.
That update revealed that the company has lowered its total forecast production volume needs for English label consumer-packaged infant milk formula by ~1,650 metric tonnes for the period March through to June. This is due to significant daigou weakness, inventory build-up, and distribution model adjustments.
And while the company reaffirmed its guidance for FY 2023, it admitted that its sales growth may be at the very low end of its previous range.
Is this a buying opportunity?
The team at Morgans has been looking over the update and has given its verdict on the A2 Milk share price. In respect to the update, the broker commented:
A2M has responded to SML's profit downgrade (another one) today with a slight revision to its own sales guidance largely due to continued weakness in the ANZ Daigou market (its highest margin IF product). With uncertainty around SAMR approval and challenging market conditions, the fact that A2M has only slightly revised its revenue guidance, is potentially not as bad as feared.
However, due to the increased uncertainty, the broker is holding firm with its hold rating and a trimmed price target of $6.05, which implies 12% upside. It said:
While we think SML/A2M should eventually get SAMR approval, we retain a Hold rating. A2M is trading on full multiples and earnings uncertainty remains heading into FY24 given the challenging market conditions are likely to persist while industry participants await SAMR approval and China's birth rate remains weak.
