Should You Buy Blackmores Ltd At This Share Price?

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What happened to the BKL share price?

Blackmores Ltd [ASX:BKL] is like a rocket ship that has taken off, it’s getting higher and higher. There’s no doubt that momentum investors are piling themselves onto the stock. Not to mention the algorithmic positions from hedge funds.

Yes, the current growth rate of price is probably unsustainable. However, that doesn’t mean the stock will go into a correction either. BKL should continue its momentum in the next 1 to 3 months. After that, its price growth is going to slow down.

This is more about market psychology

Knowing that Blackmores is a healthy company with great offerings is a given. Fundamentals are not the defining metrics here. What is making this stock go up is crowd behaviour. When a stock gains momentum, it is likely to attract more buying, which reinforces the momentum.

Some people will think, ‘that is a classic bubble!’

Not so fast. Before Blackmore’s share price skyrocketed, its historical 12 month price gain was 15%. Right now, analysts are seeing a 26.31% growth rate in the company’s long term earnings.

The dramatic price gains in recent months only boosted the historical average to 19%. That’s still lower than the earnings growth analysts are expecting.

What should you do with BKL shares now?

What am I trying to say? Blackmore’s price gain is not a surprise. While there is crowd behaviour and some algorithmic trading in the price gains, there is still a fundamental case to support that.

Will there be a correction to the price? At some point, yes.

As I said, the current momentum will last another 1 to 3 months. This would be a great opportunity for traders. For long term investors, you can wait a little bit for growth to stabilise, and then reassess.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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