Leading broker says buy a2 Milk Company Ltd (Australia) shares

Yesterday the a2 Milk Company Ltd (Australia) (ASX: A2M) share price was one of the best performing shares on the local share market.

It finished the day with a 3% gain to $3.77, leaving it within touching distance of its all-time high.

Why did it climb higher?

The fast-growing dairy company’s shares were given a lift yesterday after a research note out of Deutsche Bank revealed that its analysts have upgraded it to a buy rating from hold.

Furthermore, the investment bank has increased its price target to NZ$5.00, which equates to $4.73 at today’s exchange rate. Incredibly, this means potential upside of approximately 25% from the last close price.

According to the note, its analysts are bullish on the company’s long-term prospects in the China market.

This is down to the company commanding high levels of brand interest from Chinese consumers and tailwinds including the relaxing of the one-child policy.

Should you invest?

I would have to agree with Deutsche Bank that the company is a buy today.

Despite the fact that its shares are changing hands at a reasonably lofty 35x annualised earnings, I believe a2 Milk is worth every cent due to its current growth profile.

However, as we have seen with Bellamy’s Australia Ltd (ASX: BAL) this week, the China market is notoriously difficult to operate in and things can change in the blink of an eye.

So I would suggest investors don’t go too overweight with its shares, but rather include them as part of a balanced portfolio.

I would suggest you consider buying these quality shares as well to maintain that balance.

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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. 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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