At time of writing, shares of the a2 Milk Company [ASX:A2M] are down 3.45% to $10.91.
This marks one of the sharpest downturns for the stock in the last three months.
It also flies in the face of its strong growth over the last year.
The a2 Milk Company has more than doubled in value over the past year, with a 52 week high of $13.78 from a low of $5.48.
Signs of worry for a2 Milk
This comes on the back of strong growth in demand for milk powder products in China.
However, there are some worrying signs for a2 in the air.
For starters, just two months into her job the CEO of a2 has sold off large chunks of shares.
Insider sentiment is tricky to judge, and is not always a reliable indicator.
But given that the insider is a top executive, and the sale is so significant, there might be cause for concern.
Big Insider Sell Off
CEO Jayne Hrdlicka sold $4 million in stock last week.
Another thing to consider is that the a2 Milk Company’s Price/Earnings (P/E) ratio has blown out to 46.8.
At a basic level, the Price/Earnings ratio is a measure of how many dollars you need to invest to get one dollar of the company’s earnings.
The average P/E ratio for most stocks sits between 20 and 25.
For tech stocks, high P/E ratios are relatively normal. Tech stocks are often traded on future earnings growth and hype around new product roll-outs.
But a2 is not a tech stock.
It’s a stock that has relatively stable demand for its product.
People who buy milk tend to buy it regularly.
The last truly massive innovation in milk was pasteurization.
In the US for instance, milk sales have fallen by 7% with increased competition from plant-based milks and juice.
Australia may soon replicate this trend with various milk alternatives available at your local café.
Combined with the recent sale of stocks by the CEO, trends such as these leave the a2 Milk Company looking somewhat shaky.
It may perhaps be wise to look elsewhere for stronger returns.
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