The A2 Milk Company Ltd (ASX: A2M) share price was one of the few shares to go up during March 2020 – is it a buy despite the coronavirus?
How much did it go up? It went up 7.6%. That's clearly not a big number. But when you put it in context of the S&P/ASX 200 Index (ASX: XJO) going down by 21.2% over the same month, it shows that A2 Milk outperformed by almost 30%.
Why did it do so much better than the market?
There are plenty of other growth shares that have been heavily sold off during the coronavirus crash such as Afterpay Touch Group Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC). They're a long way down even after a bit of recovery.
The important thing to consider is which way business earnings will go during this period. There's going to be less underlying sales for Afterpay. There's going to be less shipping for WiseTech.
A2 Milk is one of those businesses that is experiencing an increase in demand. It's one of those essential products that have long shelf life and people can't go without. People are stocking up. China is getting back to normal, or at least a version of it. China makes up a sizeable amount of A2 Milk's earnings.
Why I'm excited for A2 Milk's future
There is a bit more competition for A2 Milk these days. I've been saying for a while that its growth into the rest of the world is what's going to be the most beneficial for A2 Milk's ultra-long-term growth which I think some investors may not be taking into account.
A few weeks ago, it announced it had entered into an exclusive agreement with Agrifoods Cooperative for the production, distribution, sale and marketing of A2 Milk branded liquid milk for the Canadian market. This will be a good start for A2 Milk to launch other products in the future. Canada is a large market with a bigger population than Australia. There are plenty of other countries A2 Milk can expand into.
I'm also impressed that the company used this time to increase its holding in Synlait Milk Ltd (ASX: SM1) to almost 20%.
Foolish takeaway
A2 Milk has a strong balance sheet with a large cash pile which it has already used effectively during this time. It's trading at 28x FY22's estimated earnings. It may not be the most opportunistic time to buy shares considering other ASX businesses have been heavily sold off. But A2 Milk is a great business and I think it will keep compounding well over the long-term. I'd be happy to buy it today.
