On Tuesday the A2 Milk Company Ltd (ASX: A2M) share price had a rare down day and finished the session with a decline of almost 3.5% to $11.79.
Despite this decline the fast-growing dairy company’s shares are still up a remarkable 263% since this time last year.
Is it too late to invest in a2 Milk Company?
I don’t for a second believe that it is too late to pick up shares in a2 Milk Company.
Although I wouldn’t expect anywhere near as strong returns over the next 12 months as its shares generated in the last 12 months, I still think they have the potential to be market-beaters.
Especially given the increasing demand for its infant formula products in the massive China market.
I believe this demand can continue to grow for a long time to come, allowing a2 Milk Company to generate above-average earnings growth for the foreseeable future.
After all, despite its amazing progress in China, it still only has a 5.4% share of the market. With new regulations easing competition, I expect a2 Milk Company to grow its share meaningfully over the next few years.
I’m not alone in thinking that a2 Milk Company is a buy. According to a research note out of Morgans at the end of March, it has an add rating and $14.40 price target on its shares.
Analysts at Citi are almost as positive and have a buy rating and $14.00 price target on its shares at present.
The mid-range of these two price targets equates to potential upside of over 20% for its shares over the next 12 months. And while its shares do trade at a significant premium to the market average, I believe the growth the company is capable of achieving more than justifies this.
In my opinion, this means an investment in a2 Milk Company offers investors a compelling risk/reward.
Perhaps, the hardest decision that investors may have to face is deciding whether to choose it or the equally attractive Bellamy’s Australia Ltd (ASX: BAL).