Stock of the day: Treasury Wine Estates

(AI video summary)

This video was created on 10 December for IG audiences by ausbiz.

ASX code: TWE

Treasury Wine Estates expands into China

Treasury Wine Estates (TWE), a prominent player in the wine industry, has made a strategic move by acquiring a 75% stake in Stone and Moon Winery, a Chinese vineyard, for approximately $28 million. This acquisition aligns with TWE's strategy to bolster its luxury wine portfolio by investing in premium vineyard assets.

The deal is expected to close in the second half (H2) of 2025, with an option to acquire the remaining 25% after five years. This expansion into China reflects a shift in strategy following previous challenges with exporting Australian wine to China, highlighting the importance of diversifying and securing local assets to mitigate geopolitical risks.

Navigating volatility in the wine industry

For traders, TWE's stock presents both opportunities and challenges. Historically, the stock has experienced significant volatility, with prices not far from the lows seen during the Covid-19 pandemic.

Despite a recent uptick, the stock faces resistance levels, indicating potential hurdles ahead. This volatility underscores the importance of understanding market dynamics and the impact of external factors, such as geopolitical tensions, on stock performance.

Traders should consider these variables when evaluating TWE as an investment, recognising that the wine industry can be subject to shifts in demand and international relations.

Evaluating growth potential

Investors considering Treasury Wine Estates should weigh the potential for growth against the inherent risks. The stock has been trading within a range of $11 to $12.50, with moderate revenue growth reported in the recent June results. However, earnings per share (EPS) remain flat, reflecting the challenges in achieving substantial profitability.

The wine industry, unlike commodities like iron ore, is susceptible to changes in consumer preferences and international trade policies. For those holding the stock, monitoring upcoming earnings reports and market conditions is crucial. A neutral stance might be prudent until clearer signals of sustained growth or strategic success emerge.