Blackmores: the bubble question

Few companies can brag about a 64% increase in revenue over two years – fewer still can say it led to a 157% increase in net profit due to the inherent operating leverage in manufacturing vitamins. So that justifies at least some of the jump in valuation. Most of the jump, however, comes down to rising expectations for future growth. Blackmores’ earnings per share have risen at 13% a year over the past five years. Even if that rate were to continue for another five years, investors would still lose money if the company’s current price-earnings ratio of 57 reverted to its five-year average of 26. Worse still would be for it to reach the current PER of 20 for the consumer staples sector as a whole. Is Blackmores’ share price a bubble ready to pop or an accurate estimate of its future cashflows? As value investors, the question that really matters is whether there’s room for error. And when it comes to Blackmores, you can bet your boots there isn’t. Continue reading article: (VIEW LINK)