Here’s why the a2 Milk share price is tumbling again

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The a2 Milk Company (ASX:A2M) share price has tumbled 54 cents or 5.8 per cent lower to $8.71 as high flying ASX stocks are following Wall Street lower.

Rising US interest rates is sending shivers through the stock market as higher interest rates slow economic growth and by comparison, can also make bonds and term deposits look more attractive than shares.

In Thursday morning trade, the ASX 200 index has plunged 125 points or 2.07 per cent to 5,924. Though there was no major news out on a2 Milk, that pressure in the broader share market was enough to push its shares sharply lower.

So what?

a2 Milk shares have been under pressure in recent times after the new CEO Jayne Hrdlicka sold all 357,232 a2 Milk shares she owned just a few months after joining the company.

To be fair, she had to sell due to tax liabilities and obligations associated with buying a home two years ago. And these shares were granted to her as replacement for Qantas shares she walked away from when she left the airline to run a2 Milk.

Also weighing on the a2 Milk share price is Bell Potter downgrading the stock to a “hold” from a “buy,” with the AFR saying the broker told clients there are a number of near-term risks that could emerge over the remainder of year.

In January 2019 a new ecommerce law in China comes into effect when the grace period for selling English label baby milk formula ends.

a2 Milk told the AFR they are conformable with the a2 business model heading into the changes and sales will not be hit come January 1.

Now what?

a2 Milk shares are not cheap, and nor are they for the faint hearted. From its absolute high earlier this year of $13.78, the a2 Milk share price has plunged 37 per cent to the $8.71 it trades at today.

In August, a2 Milk reported full year profits jumped 116 per cent on revenues up 68 per cent.

Valuation-wise, a2 Milk shares trade on a trailing price to earnings ratio of around 35 times. For a company growing as quickly as a2 Milk, the valuation is looking attractive. No matter what, expect more volatility ahead.

a2 Milk shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

a2 Milk was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than a2 Milk. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au