Could the Blackmores share price fall another 18%?

The stock market can be brutal, maddening and optimistic all at once.

The long-term price action of Blackmores is indeed something that would stir elation amongst early investors. In January 1999, Blackmores stock traded at just A$5.00 per share. Almost two decades later – in January 2016 – the Blackmores share price stood at an ambitious A$210.00 per share; a tidy increase of 4,100%.

The last few years by comparison have proven to be significantly less fortuitous. Had you invested around those peaks and held until today, you capital would have more than been cut in half.

Indeed, at the time of writing, Blackmores stock currently trades at the A$84.95 mark; a far cry from its relatively recent all-time peak. Such is the brutality of the markets, I guess.

A recent article from Reuters explains what triggered this calamity well:

‘Blackmores, once an investors’ darling as China’s appetite for health products drove double-digit annual sales growth, is now struggling with tougher import rules and a slowdown in consumer spending in its biggest overseas market.’

Chinese regulation has indeed minted – and stalled the growth of many aspirational ASX-listed companies. A2 Milk for example has been on a multi-year growth spree thanks to China’s fast growing middle-class. Bellamys by comparison saw its share price hammered as the company vied for – but never received the required regulatory approval to sell its infant formula in Chinese retail stores. As we previously wrote:

‘That approval never came – and indeed, remains pending.’

The Blackmores share price and Credit Suisse

Blackmores – like Bellamys – isn’t quite out of the woods just yet either.

Specifically, according to the banking giant Credit Suisse, there remains more downside still for the Blackmores share price. Specifically, the investment bank just today downgraded the stock from ‘neutral’ to ‘underperform’ and hit Blackmores with a 12-month price target of A$69.00 per share.

At current price levels and not including dividends, this would imply a potential further share price decline of around 18.7%.

Importantly, Credit Suisse does somewhat hopefully postulate that there is potential of a turnaround story or even a takeover – potentially like the one Bellamys recently received.

Yet on the basis of valuation, Blackmores still trades at a heady set of estimated multiples: 31 times FY20 EPS and 26.5 times FY21 EPS. In step with this, the bank has reduced its EPS forecasts for Blackmores, which currently sit at A$2.79 (FY20), A$3.27 (FY21) and A$3.59 (FY22)

Mind you, even with this underperform rating and EPS reduction, Credit Suisse was impressed by Blackmores recent management shake-up and critically believes that growth will resume in FY21.

The question remains then: can investors wait that long?

Or maybe a better question: is there actually a turnaround story here as Credit Suisse so suggests?

Only time will tell.

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