The Flight Centre Travel Group Ltd (ASX: FLT) share price and Blackmores Limited (ASX: BKL) share price are both down over 40% in the past year. Is now the time to buy these former market darlings?
Volatility is Normal
The share market can be a volatile place where shares of companies can sometimes trade at irrational prices due to fluctuations in investors’ sentiment. In the case of the two popular ASX companies in Blackmores and Flight Centre, the share prices have fallen on hard times. The trick for investors is to assess whether this has provided an opportunity to pick up shares on the cheap due to some temporary issues or whether these shares should be avoided.
Flight Centre
In late April, Flight Centre announced a downgrade to its full year profit guidance despite continuing impressive growth in its international markets. Its Australian operations were dragging the chain due to subdued trading conditions and ongoing changes being made to its sales system, branding and wage model for front end sales staff.
Whilst Flight Centre may be facing some headwinds domestically its international operations are growing strongly and will increasingly underpin the future profit growth of the company.
Blackmores
Much of the decline in the Blackmores share price has come in the weeks following last year’s annual report and the release of their recent half year result in February.
Despite posting a record half year revenue result, profit was flat due to increased investment in sales and marketing. Investors have become increasingly concerned that weakening sales growth into China will derail the investment thesis that Blackmores is a buy for Chinese consumer growth. The Blackmores share price has been significantly de-rated as a result and is unlikely to recover until there are signs that the China growth story is picking up.
Earlier this month, Blackmores announced the appointment of their new CEO in Alastair Symington. The appointment provides a firm footing from which management can go about making the necessary strategic decisions.
Whilst there is likely to be many road bumps along the way the Chinese market offers Blackmores enormous potential if management can successfully execute on their growth strategy.
Would I Buy Now?
I think there are compelling arguments to be made for both Flight Centre and Blackmores at their current share prices. However I find it very difficult to make revenue projections for Blackmores with any degree of clarity, making it a very difficult to form an assessment of its current valuation.
In the case of Flight Centre I still have nagging concerns with regards to the ongoing disruption caused by the online marketplace and the affect this may have on Flight Centre from a long term point of view. Whilst a popular view, this has been consistently brushed aside as the share price marched higher over the past decade. There is a good chance my skepticism about online disruption will be unwarranted but only time will tell.
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Disclosure: At the time of publishing, Luke has no financial interest in any companies mentioned.
