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Should you buy A2 Milk Company Ltd (ASX:A2M) shares?

On Thursday the A2 Milk Company Ltd (ASX: A2M) share price was one of the best performers on the market with a gain of almost 6%.

The infant formula and dairy company’s shares surged higher after the Chinese government revealed that tough new e-commerce laws would not be introduce in January. Instead, the China State Council decided to refine its existing policies.

This was a big win for the likes of a2 Milk Company, Bellamy’s Australia Ltd (ASX: BAL), and Blackmores Limited (ASX: BKL), as there had been concerns that strict new rules would have had a negative impact on certain sales channels.

Is it too late to buy a2 Milk Company’s shares?

I don’t believe it is. At a touch under 30x estimated forward earnings, I think a2 Milk Company’s shares are trading at a fair price for investors that are prepared to hold onto them for the long-term.

Especially given its recent update which was stronger than many expected. For the first four months of FY 2019 the company has seen revenue increase 40.5% to NZ$368.4 million and net profit after tax rise 64.5% to NZ$86 million.

I’m not alone in thinking that a2 Milk Company’s shares are in the buy zone.

A note out of Credit Suisse reveals that its analysts have upgraded the fast-growing company’s shares to an outperform rating with a NZ$12.25 (A$11.50) price target. This price target implies potential upside of over 16% based on its last close price.

According to the note, the broker was pleased with a2 Milk Company’s strong start to FY 2019. It was particularly impressed with its increasing market share in the ANZ region and the continued progress being made by its infant formula segment in the China market.

In addition to this, the broker sees the pullback in its share price since August as a buying opportunity.

I completely agree with this view and see a2 Milk Company as a great option along with Bellamy’s, which has also been dragged notably lower over the last two to three months.

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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 Blackmores Limited. 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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