Where next for the A2 Milk Company Ltd (ASX:A2M) share price?

Source: Company presentation

Much to the relief of its shareholders, the A2 Milk Company Ltd (ASX: A2M) share price has returned to form on Tuesday.

At lunch the infant formula and dairy company’s shares are up nearly 1.5% to $9.00 as investors shrug off reports of increasing competition from food giant Nestle.

What has been happening?

According to the AFR, Nestle is launching its own A2-only infant formula in Australian and New Zealand.

It plans to launch its NAN A2 brand in Wesfarmers Ltd (ASX: WES) operated Coles supermarkets and online in Australia this week. After which, the company will begin selling its S-26 Atwo brand in New Zealand in select Countdown stores and online from November.

This could be a sign that Nestle’s launch of its Illuma Atwo formula brand in China in February has been a success and that it is now seeking further market share by launching in Australia and New Zealand.

Nestle’s Tarun Malkani told the news outlet that the company has made the move to make sure that consumers have choice. Saying that: “This is a viable lead in the market and consumers have asked for it, so we have a responsibility to give them an option along with the other options in our portfolio.”

Should you be concerned?

When news of Nestle’s A2 launch in China surfaced earlier this year, a2 Milk Company didn’t seem overly concerned. It advised that it was “confident that the past investment in its brand has established a strong consumer franchise which will continue to strengthen as its level of investment and distribution continues to grow.”

It also suggested that it could benefit from “enhanced consumer credibility as the creator and pioneer of the A1 protein free proposition.”

It hasn’t been long enough to know whether this has been the case or not, but I do have a few concerns over this launch and the impact it could have on sales.

Should you invest?

While I do think that a2 Milk Company could be a great long-term investment, I’m not convinced that its shares are destined to surge higher any time soon.

In many respects, the company reminds me a lot of Domino’s Pizza Enterprises Ltd (ASX: DMP) from 12 months ago.

Heavy insider selling, slowing growth, negative news flow, and rising short interest all weighed heavily on investor sentiment and Domino’s shares for a prolonged period and could do the same for a2 Milk Company.

It is only really now that Domino’s shares have started to shake this off and push higher again. As a result, I feel you may have to be patient with an investment in a2 Milk Company until it (hopefully) proves the doubters wrong.

In the meantime, here's one top growth share tipped to climb higher in FY 2019.

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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 and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited. 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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