Blackmores Limited (ASX: BKL) shares have been on a rollercoaster since January 2015; starting in the $30s, rising up to $217 by December 2015, now down to $112 today.
A shareholder could be sitting on a 350% gain or 48% loss depending on when they bought the shares. Even with this drop, Blackmores is one of Australia's biggest health companies with a market capitalisation of $1.9 billion.
So why has its share price been so topsy-turvy?
Outstanding results
In FY14 Blackmores earned $25.4 million in net profit after tax (NPAT), in FY15 its NPAT was $46.5m and in FY16 NPAT was $100m. By my calculations, Blackmores grew its profits by 394% between FY14 and FY16.
Naturally, the market loved this growth and increased the share price with expectations of further great results. Perhaps the market expected too much?
Asia
A large part of Blackmores' growth has been attributed to Asian consumers, officially and unofficially. Demand was so high, Australians were purchasing and shipping the product over to China. In fact, Blackmores estimates that around 50% of its products are sold to Asian consumers.
The Chinese government recently declared they want to limit this grey market of goods arriving unofficially into China. As the market knew this announcement would likely affect Blackmores, its shares were sold down.
Outlook update
In its FY16 release, Blackmores disclosed that it expects the first quarter of FY17 to be down on the prior corresponding period (but didn't disclose how much down). Considering the market had priced in growth, this unexpected news added to the decline.
On the same presentation slide, Blackmores said it was confident that sales will improve as the year progresses. The share price decline may have been too negative if Blackmores resumes growth in the upcoming quarters.
Reasons to be positive about Blackmores
Blackmores acquired 'Global Therapeutics' in May 2016 for $23m. The acquisition has two brands offering Chinese herbal medicine – these brands are market leaders in this category at health food stores and pharmacies.
Blackmores will soon be launching in Indonesia, further expanding its overseas markets.
The partnership with Bega Cheese Ltd (ASX: BGA) to develop nutritional foods including toddler milk is progressing. In FY17 it has plans to start selling these products in markets like China. Its toddler milk will put it in direct competition with Bellamy's Australia Ltd (ASX: BAL).
Blackmores' balance sheet is in an extremely strong position; its gearing ratio is a low 9.1% and its net interest cover is 80.2x.
Dividend
Blackmores' grossed up dividend yield is currently around 5.2%. Considering Blackmores is expected to pay a dividend of $6.20 per share by FY18 (source:Commsec), this suggests Blackmores is trading at a forward yield of 7.9%. This makes Blackmores look like an attractive income and growth stock.
Time to buy?
Blackmores is currently trading at 18.5x FY16's earnings and 13.2x FY18's estimated earnings. These ratios appear reasonable for the potential growth on offer.
As I mentioned before, Blackmores didn't disclose how 'down' the first quarter would be – 1% down and 10% down are both 'down'.
I think Blackmores looks like a good buy at this price, but it may be worth splitting a potential investment in half; invest half before the Q1 update and the other half afterwards, in case a cheaper price is available.
