So far this year the Capilano Honey Ltd (ASX: CZZ) share price has vastly underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with a 12.5% decline.
This decline means the leading honey producer's shares are trading just a fraction above their 52-week low.
What happened?
In February the company reported a mixed interim result. Half-year revenue fell slightly compared to the prior corresponding period as its non-honey sales suffered due to weakness in the apple cider vinegar market.
Furthermore, operating profit fell slightly also due to lower sales and increased expenses. These were related to greater marketing and research costs, primarily for the launch of its new Beeotic range.
Ultimately this led to first-half earnings per share of 62.4 cents, down from 64 cents a year earlier.
What now?
Whilst its half-year results were reasonably mixed, I think the sell-off has been a bit of an overreaction.
A key highlight from the results which appears to have been largely ignored by the market is its performance in the China market.
Like a2 Milk Company Ltd (Australia) (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL), I think there is a huge opportunity for the company in China and was very pleased to see sales into the country almost double during the period.
Pleasingly, to build on this strong performance the company has now launched an e-commerce store on Alibaba's Tmall and an accompanying social media marketing campaign.
Is it a buy?
With its shares trading at just 13x trailing earnings, I believe they provide investors with a compelling risk/reward.
The first-half may not have been the strongest, but I feel confident that Chinese sales growth, its new Beeotic range, and lower costs will mean a return to form for this fledgling company in the second-half.
