Should You Buy Blackmores Limited at This Share Price?

What happened to the Blackmores share price?

Blackmores Limited [ASX:BKL] picked up another 1.23% by afternoon trading. The Aussie market was slightly higher for the day while the miners were lower.

BKL shares exploded in the second half of 2015, and 2016 has been a difficult period for Blackmores stocks in general. It gained to around 200% by the end of 2015, and has been on a downhill slide ever since.

Why did BKL shares do this?

Yesterday Credit Suisse gave a big thumbs-up to BKL, releasing a target price of $175. That has reignited the excitement around Blackmores, or at least for now.

BKL has been ‘on-and-off’ my watchlist for some time. Since the introduction of the stock onto the ASX100 in June, BKL has been an interesting momentum stock to watch.

Look, BKL has gotten so big that it is now on the ASX100. That means the stock is among the less-volatile stocks in the Aussie stock universe. Bigger firms tend to have less volatility than the smaller firms.

Of course, that doesn’t mean big companies can’t get bigger or shrink much smaller, it just means they are under the ‘spotlight’ all the time, and there is plenty liquidity for trading them.

What now for Blackmores Limited?

Should you have a position in BKL? That’s complicated.

As I said, BKL has been on-and-off my watchlist. If you look at the stock price, you can easily see that the stock isn’t on any solid trend. However, if Credit Suisse is right on their valuation, then the stock can still have a lot of room to gain over the coming months. However, it is unlikely the stock will see the kind of consistent rally it experienced in the second half of 2015.

If you look at the fundamentals of the company, there is uncertainty on how the Chinese would regulate their borders. I talked about the situation a few months ago and will repeat. It’s likely Chinese regulators will increase the cost of imports at some point.

However, the policy shift appears to be more flexible this time. They want to encourage consumption, market liberalisation, and honour China’s trade agreement with Australia. So we will continue to see those policy moves be quite murky.

Blackmores is a leading producer of vitamins in Australia. The company is also partnering to expand its interest in the infant formula business. If you buy China’s consumer story, then you ought to buy into the stock. The company’s Chinese business will continue to expand. Health products and healthy food are on high demand in China, and that’s sure to continue.

Ken Wangdong
Emerging Market Analyst, Emerging Trends Trader

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