Shares of Blackmores Limited (ASX: BKL) have come off the boil today, at one stage falling more than 9% to $159 after hitting a high of more than $200 a share on Thursday.
So What: Blackmores has been something of a story stock over the last 12 months, defying the expectations of most analysts and investors. Indeed, even after today's decline, the shares are still up more than 390% compared to this time 12-months ago.
The company, which has traditionally focused its attention on various health products such as vitamins and mineral nutritional supplements, reported record sales and profit results during the 2015 financial year, driven mostly by its performance in the Australian market.
In a footnote included in its Annual Report however, it said revenues recorded for Australia includes, "the benefit of sales made to Australian customers which we believe are ultimately intended for Asian Market".
This experience is not unique to Blackmores; it is believed that a significant amount of products provided by Bellamy's Australia Ltd (ASX: BAL), which provides infant formula, is also purchased in Australia and on-sold into Asian markets – particularly China.
Now What: Blackmore's latest rally came after another strong quarterly report, together with an announcement that it had entered a new partnership with Bega Cheese Ltd (ASX: BGA) to enter the lucrative baby formula market.
Although it seems there could be exciting times ahead for the company, investors need to be extra cautious. Indeed, there is no denying the hype surrounding the company right now and that could certainly be pushing the share price higher. As it stands, the shares are trading on a price-earnings ratio of more than 46x forecast earnings, which compares to a mere 16x for the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
Investors may be wise to give the stock a miss, for now, and instead focus on other companies that appear more reasonably priced.
