One of the worst performers on the ASX 200 on Friday has been the Treasury Wine Estates Ltd (ASX: TWE) share price.
In morning trade the wine company's shares were down over 4.5% to $16.11
Why is the Treasury Wine Estates share price sinking lower?
On Thursday Treasury Wine Estates announced its half year results and revealed a 16% increase in net sales revenue to $1,507.7 million. On a constant currency basis net sales revenue lifted 13%, representing the strongest organic growth rate in its history.
On the bottom line net profit after tax was up 17% to $219.2 million, with earnings per share climbing 19% to 30.5 cents.
One broker that didn't like what it saw was Goldman Sachs. Although the reported result was in line with its expectations, it felt the quality of the result was disappointing from a cash flow perspective.
According to the note, the broker doesn't believe the result was enough to justify the recent rise in its share price and elevated valuation.
It also has concerns over the "increasing risk on working capital/cash conversion ratio and the company's growing reliance on new brands and regional products."
In light of this, the broker has downgraded Treasury Wine Estates' shares to a sell rating from neutral, though it has increased the price target on them by 2% to $13.70.
This price target implies potential downside of approximately 15% even after today's decline.
What now?
While I think that Goldman makes some great points on Treasury Wine Estates, I wouldn't let it put you off buying the company's shares if you plan to hold onto them for the long-term.
In the short term its shares may remain volatile, but over the next decade I believe the company is well-positioned to generate strong returns for shareholders due to its growing U.S. and Asia businesses.
As a result, I would class them as a good buy and hold option along with fellow growth shares A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL).
