The A2 Milk Company Ltd (ASX: A2M) share price has fallen by 12% since its recent high earlier in March.
It hasn't been hit as hard as many other shares. In the first two months of the second half of FY20 the company said that it had generated more sales than it had expected.
Infant formula is even more important than toilet paper – children need their nutrition. It's great that A2 Milk has managed to build its reputation as a quality brand with staple products.
I think there are three key reasons why it could be a solid buy today:
It's in high demand
If you go to any capital city in Australia you'll probably find the supermarket shelves empty of A2 Milk products. Not just infant formula, but the other stuff like milk and powdered milk is also in high demand.
Whilst investors are obviously fearful of a recession, the important thing for any business is seeing growth of its revenue and earnings in the short-term and long-term.
If A2 Milk is seeing high demand for its products it's very likely to report a solid FY20.
Great balance sheet
The most important thing for businesses to get through this period is to have enough cash to pay its expenses and make sure its debt doesn't overwhelm the company.
A2 Milk isn't in danger of debt problems. It doesn't have any debt on its balance sheet at all.
At 31 December 2019 it had NZ$618.4 million of cash. It is one of the best placed businesses on the ASX to survive and thrive through this.
China is going back to normal
One of A2 Milk's key markets is China. The Asian giant was hit hard over January and February, but now life is mostly going to back to normal.
The fact that China has gotten the infection under control means that A2 Milk's supply chain and the Chinese demand is probably going to be in a good place for the company.
If the company can keep products flowing to China then its earnings are unlikely to be hurt much during this period.
Foolish takeaway
A2 Milk has a very compelling long-term growth plan. It's now looking to expand into Canada, which could be another large market for the infant formula business.
