a2 Milk Company Ltd (Australia) (ASX: A2M) has been one of the standout performers on the ASX over the last year with the share price up by 253%.
The company gave an update yesterday at its AGM stating how it was going so far this financial year. Sufficed to say, the update was impressive. For the four months to October 2017 the results were:
- Revenue growth of 68.9%
- Earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 120.8%
- Net profit after tax growth of 137.7%
However, investors may be short-sighted if they think that this year will be the end of the impressive growth.
A2 has well and truly established itself as a market leader of dairy products in Australia and New Zealand. Here are a few reasons why I think it could keep smashing the market:
Growing margins
A2's scale is growing all the time, which means economies of scale are playing a bigger role with more products being produced and sold.
In its AGM update it revealed that for the four months to October 2017 the EBITDA margin had grown from 22.9% to 29.9% compared to the prior corresponding period.
New products
The business is frequently coming out with new products.
One of its latest ideas is stage four infant formula which is made for children over the age of three. This product could also soon be sold out everywhere and give A2 another source of exciting income if the daigou get excited by it.
China
China is already a large and growing market for A2 with direct and indirect sales growing strongly.
However, I think a key driver of future growth will be that the Chinese government has abolished the one-baby policy and the growing number of babies will flow through to increased formula demand in a couple of years.
Foolish takeaway
A2 is definitely not cheap at $7.46 per share, however there is every chance that it will continue to outperform the market if it can keep growing at its current pace.
