Is it too late to buy A2 Milk Company Ltd shares?

Since releasing its half-year results in February the A2 Milk Company Ltd (ASX: A2M) share price has gone absolutely nuts.

The strong post-earnings gain means that the dairy company’s shares are the best performer on the All Ordinaries (Index: ^AXAO) (ASX: XAO) over the last 12 months with a whopping 423% gain.

Is it too late to buy shares?

Whilst I don’t think it is necessarily too late to buy a2 Milk Company’s shares if you’re willing to hold onto them for the long-term, I do think that its shares are fully valued now.

This could potentially mean limited upside for its shares during the rest of 2018.

Based on its last close price of $11.87 the company’s shares are priced at 65x trailing earnings, which is a significant premium to the market average.

But in fairness, considering its strong growth, it is probably unfair to value its shares on a trailing basis.

But looking at it on a forward basis still reveals a significant premium. According to a note out of the Macquarie Group Ltd (ASX: MQG) equities desk last month, its analysts expect a2 Milk to achieve earnings per share of 25.6 cents in FY 2018 and 36.9 cents in FY 2019.

Which means that the company’s shares are changing hands at 46x estimated FY 2018 earnings and 32x estimated FY 2019 earnings at present. I think this is about right for its current growth profile, which is why I would class it as a hold now.

If profit taking were to weigh on its shares and drag them down towards the $10.00 mark I would be backing up the truck, but something tells me that would be wishful thinking.

Incidentally, I think the same can be said for Bellamy’s Australia Ltd (ASX: BAL) and would hold off an investment until a more attractive entry point presents itself.

In the meantime, here are some explosive growth shares trading at great prices today.

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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 Scott Phillips.

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