The A2 Milk Company Ltd (ASX: A2M) share price has been one of the worst performers on the S&P/ASX 200 Index (ASX: XJO) in 2021.
Since the start of the year, the infant formula and fresh milk company's shares have lost a third of their value.
Things are even worse for the a2 Milk share price over the last 12 months. Since this time last year, the company's shares have crashed 55% lower. This compares to a gain of 31% by the ASX 200 index over the same period.
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What's gone wrong for a2 Milk?
The a2 Milk share price has been sold off largely due to the deterioration of its performance because of headwinds associated with the pandemic.
These headwinds are being felt deepest in the daigou channel due to international tourism and student markets coming to a standstill. Daigou shoppers will buy product from local sellers such as supermarkets and then send it back to mainland China at a premium.
What impact has this had on its financials?
These headwinds have had a dramatic impact on the company's financials. This has led to countless guidance downgrades, which begs the question, why provide guidance when things are so uncertain?
For example, in FY 2020, a2 Milk reported revenue of NZ$1.73 million and was expecting further strong growth in the new financial year.
Just a touch over a month later, management revealed that it had started to observe emerging additional disruption to the corporate daigou/reseller channel. This led to the company reducing expectations and guiding to revenue of NZ$1.8 billion to NZ$1.9 billion for FY 2021.
By December, things were not improving, leading to the company downgrading its guidance by almost half a billion dollars. At that point, it was expecting revenue to be between NZ$1.4 billion and NZ$1.55 billion.
And then in February, a2 Milk released its half year results and downgraded its guidance further. It currently expects revenue to be around NZ$1.4 billion this year.
However, it is worth noting that this guidance assumes that initiatives it is undertaking to reactivate the daigou channel deliver a notable improvement in its sales in the fourth quarter. This is of course far from guaranteed.
And judging by the a2 Milk share price performance, not something which the market appears confident in.
Is the a2 Milk share price good value now?
Despite the significant decline in the a2 Milk share price, some brokers believe it can still go lower.
Ord Minnett currently has a lighten rating and $7.70 price target, whereas Citi has a sell rating and $7.15 price target.
The latter also has concerns about increasing competition in the China market from domestic producers and building inventory levels. In respect to the latter, it suspects that daigou sellers may have to discount product as it nears its expiry date.
