The A2 Milk Company Ltd (ASX: A2M) share price is down 4% right now after news of a class action against the ASX share.
A2 Milk class action
The company is facing more woes as Slater & Gordon Limited (ASX: SGH) is doing a class action against A2 Milk.
Slater & Gordon said this class action relates to investors who bought A2 Milk shares between 19 August 2020 and 7 May 2021.
What is alleged?
The lawyer firm points out that on 19 August 2020, A2 Milk released its FY20 result and that in FY21 it was expecting continued strong revenue growth supported by its continued investment in marketing and organisational capability.
A2 Milk was also expecting to to achieve an FY21 EBITDA margin (EBITDA explained) in the order of 30% to 31%.
Slater & Gordon says that A2 Milk was, or should have been, aware that the FY21 guidance and subsequent guidance updates did not adequately take account into a number of factors which would impact the company’s financial performance. The A2 Milk share price fell heavily throughout FY21 in response to the subsequent updates. Slater & Gordon said:
“A2’s attempts to boost sales by pushing English label infant nutrition stock through the cross-border e-commerce channel with attendant price discounting consequences would necessarily negatively impact its sales in the daigou/reseller channel.
“A2’s sales through the cross-border e-commerce channel would in turn be impeded by the disruption to the daigou/reseller channel and the loss of associated marketing activity to stimulate consumer demand.”
With that in mind, Slater & Gordon says that A2 engaged in misleading or deceptive conduct by providing and maintaining the FY21 guidance and subsequent representations which lacked reasonable grounds.
The lawyer group also alleges that A2 contravened its obligations of continuous disclosure of price sensitive information by failing to withdraw the FY21 guidance and subsequent representations or to disclose the matters which affected the achievement of that guidance.
What to make of this for the A2 Milk share price?
Investors clearly don’t like it. I’m not a lawyer, I’m not sure how much chance of success that the class action has.
It is another negative for the business which is already facing issues. relating to lower demand out of China.
There may be an opportunity here. The share market can sometimes be overly pessimistic about businesses going through difficulties. However, it’s not the type of investment that I’d normally want to make. I have my eyes on other ASX growth shares.
