Following the release of some mediocre results recently, the Blackmores Limited (ASX: BKL) share price has fallen 40% to $89.
In its most recent quarterly report, the company reported a 6.7% decline in sales compared to the same quarter last year. Following a working capital crunch last half that saw company gearing (debt) balloon out to 32%, short seller interest in the company has increased sharply.
Currently, 8% of all Blackmores' shares on issue are held for short sale, which I'd gather has been putting pressure on the share price, given that Blackmores shares are typically thinly traded. Shares could fall further, but it's impossible to know for sure if that will be the case.
The question for readers then is: 'Should I buy Blackmores today?'
But if you say that, what you're really asking is: 'If I buy Blackmores today, do I think that shares will be worth substantially more in 5 years' time?'
To do that you would need to look at the company's growth opportunities. In addition to China, which is a key growth market that's recently gone through a bout of uncertainty with changed regulation, Blackmores has several other growth opportunities:
- Indonesia; an initial $2.6 million joint venture investment here generated $2.8 million in sales (not profit) in less than a year
- Vietnam; Blackmores is about to launch 13 products with Mesa Group as its distributor with 'access to a network of 150,000 retail stores'
- Korea; Korean sales have fallen heavily which management attributed to a change to a new selling model, Blackmores is only a tiny player in this market at present
These are the major ones although Blackmores is also selling into a number of other countries including Taiwan, Hong Kong, Thailand, Malaysia, and more. On top of that, Blackmores has been adding new products, with its Bioceuticals range also delivering robust growth.
When new products and new markets are considered, Blackmores certainly has the potential to become much larger over time. The company faces short term issues with its recent working capital blow-out, although management's tendency of keeping debt low prevented more serious problems.
On balance I think Blackmores looks attractive, and I'd consider owning shares at today's prices.
