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a2 Milk Company Ltd (Australia) shares go gangbusters on trading update

Credit: Benjamin Horn

One of the big movers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today has been dairy company a2 Milk Company Ltd (Australia) (ASX: A2M). At the time of writing its shares are up 7% to $2.11 following its annual general meeting and the release of a positive trading update.

Managing director and CEO Geoffrey Babidge revealed that for the July to October period group sales were up an impressive 96% over the prior corresponding period to NZ$155.2 million.

But even more incredible was its growth in profit before tax. During the period profit before tax grew a whopping 536% to NZ$35 million.

Key catalysts for the impressive performance have been the performance of its local and China-based operations.

The company has experienced solid growth in the Australia and New Zealand segment, with consistent growth in demand for its a2 Platinum infant formula.

Over in China growing awareness for its products driven by in-country marketing led to Chinese Singles Day volume sales more than doubling over the same period last year.

According to the release a2 Platinum Stage 3 was one of the top 10 Singles Day products across all categories on online shopping giant JD.com.

Additional growth in the country came through Mother and Baby stores as a result of increased marketing and broader distribution.

Overall it would appear that concerns over slowing sales from the China market have proven to be unfounded. As a result it is not at all surprising to see rival Bellamy’s Australia Ltd (ASX: BAL) also surge higher today. Just after lunch Bellamy’s shares are up 5% to $11.20.

The company has also seen improvements in the lucrative United States market. And pleasingly in the UK its fresh milk sales have grown over 50% on the prior corresponding period.

In my opinion the company is only just scratching the surface in international markets, which could mean significant growth ahead.

In light of this I believe a2 Milk represents a great long-term buy and hold investment. At 26x estimated FY 2017’s earnings, it looks great value in my eyes compared to other growth shares.

Finally, not all shares are must buys like a2 Milk. These shares could be must sells. Get rid of them now if you own them would be my advice.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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