What to look for at the a2 Milk Company Ltd (Australia) AGM

The a2 Milk Company Ltd (Australia) (ASX:A2M) share price could be a big mover on Tuesday when it holds its AGM. Here's what to look for…

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In afternoon trade the a2 Milk Company Ltd (Australia) (ASX: A2M) share price is approximately 2% lower at $7.04.

With no news out of the dairy company, it appears as though some investors are locking in gains ahead of tomorrow's highly anticipated annual general meeting.

Which is hardly a surprise. With its shares up almost 250% this year and significant future growth built into its share price, failure to deliver on the market's expectations tomorrow could lead to its shares taking a sharp tumble.

What is the market expecting tomorrow?

According to research notes that I have seen, analysts are expecting earnings per share in the range of 19 to 21 New Zealand cents in FY 2018.

This represents year-on-year earnings growth of between 49% and 65% on the 12.7 cents it achieved in FY 2017.

I feel that any full-year guidance that falls short of this, or even at the low-end of the range, could lead to a2 Milk's shares ending the day in the red.

Goldman Sachs is one of the more bullish brokers out there. According to its note, its analysts have forecast earnings per share of 20.9 New Zealand cents and EBITDA of NZ$228 million for the year ending June 30 2018.

The broker expects this earnings growth to be fuelled by strong infant formula sales into China and an increase in its gross margin to 48.9%

Should you invest before the meeting?

While a2 Milk has a habit of smashing the market's expectations, there's no guarantee that it will continue to do so tomorrow.

In light of this, I don't believe the risk/reward on offer here is sufficient to invest today. Instead, I would wait for its trading update and guidance tomorrow before considering whether to make an investment.

Motley Fool contributor James Mickleboro has no position in any of the 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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