Will 2021 go down as the year A2 and other milk share prices turned sour?

Infant formula used to be a booming sector. Yet, 2021 is shaping up to be a shocking year for the A2 Milk share price and other milk makers.

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What was once the flavour of the time, ASX-listed infant formula companies have gone off this year. To be fair to 2021, the decline had begun around the middle of last year. But that hasn't stopped this year from adding to the share price pain of companies like A2 Milk Company Ltd (ASX: A2M).

The boom of A2 Milk and infant formula share prices

There was a time when milk was like liquid gold, with the main boom from the infant formula market. If you took a quick look at the share prices of many ASX-listed infant formula makers, you'd see the initial uptick began in 2017.

From there, it was nothing but blue skies. Speculators piled in as the Chinese market showed stronger demand for Australian formulated milk. A2 Milk overtook Blackmores Ltd (ASX: BKL) in market capitalisation as the story gained pace.

Sure enough, investors turned to riskier small caps hoping to replicate the same success. Companies such as Bubs Australia Ltd (ASX: BUB) and Wattle Health (ASX: WHA) caught the coattails of the rapidly growing industry.

Until one day the growth story became growth history.

Three ASX-listed infant formula shares ravaged

Clover Corporation Ltd (ASX: CLV)

Likely the least known on this, though surprisingly not the smallest in value, Clover Corporation has handled the unfavourable environment reasonably well. For starters, the company's share price is up 17.6% year-to-date.

Clover Corp has likely benefitted from its diversified business. Although the company is focused on infant formula, its powders are also used in bread, yoghurt, health bars etc.

However, this didn't prevent the company from taking a hit to its revenue and earnings from a decrease in demand. Clover reported a 21.7% revenue decline year-on-year to $29.4 million in H1 FY21. Net profit also declined 45.8% to $2.5 million.

Bubs Australia Ltd (ASX: BUB)

Bubs were one of the small ASX-listed companies that investors clung to through the hype. Being relatively small, the company's unique goat infant formula products generated rapid revenue growth in percentage terms.

Unfortunately, Bubs' success story was highly contingent on sales into China's Daigou channel. As fate would have it, COVID-19 brought abrupt disruptions to this core growth lifeline. In the company's 1H FY21 result, it notes this was partly offset by strong local momentum. Regardless, COVID took a 23% bite out of the company's gross revenue compared to the prior corresponding period.

As you might have guessed, a small company making losses, losing its growth is devastating. The Bubs share price year-to-date reflects shareholder's disappointment — shaving off 31%.

A2 Milk Company Ltd (ASX: A2M)

The grandaddy of ASX infant formula is A2 Milk. Arguably one of the biggest success stories of the ASX in recent times, maybe behind a few tech companies. It has scaled from an over $100 million revenue company to an over $1.5 billion revenue company in the space of six years.

A2 Milk has become a household name — both from a product perspective and as an investment. But the story gave way to significant disruptions of its daigou sales channel as well. Total revenue for the company declined 16% to NZ$677.4 year-on-year.

Losing that continuous growth streak meant investors lost their willingness to pay a high premium for the A2 Milk share price, leading to a sizeable selloff. In specific terms, shares have now fallen 39.4% YTD and 64.4% from its peak.

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