The market may have taken a tumble today, but that hasn't stopped the A2 Milk Company Ltd (ASX: A2M) share price from charging higher.
This morning the infant formula and fresh milk company's shares jumped 5% to a record high of $20.05.
When its shares hit that level, it meant they were up an impressive 43% since the start of the year. This compares favourably to an 11% decline by the S&P/ASX 200 Index (ASX: XJO) over the same period.
Why is the a2 Milk share price at a record high?
Investors have been buying the company's shares this year due to its strong performance during the third quarter.
Strong demand for its infant formula during the pandemic led to a2 Milk upgrading its FY 2020 guidance in April.
It now expects revenue to be in the range of NZ$1,700 million to NZ$1,750 million this year. It is also forecasting a stronger than expected earnings before interest, tax, depreciation, and amortisation (EBITDA) margin of 31% to 32%. This compares to its previous EBITDA margin guidance of 29% to 30%.
Based on the top end of its ranges, this guidance implies EBITDA of NZ$560 million in FY 2020. This will be a 35.4% increase on the prior corresponding period.
What else is driving its shares higher?
In addition to the above, investors may have been buying a2 Milk's shares this week following the release of a positive broker note out of UBS.
According to the note, the broker has retained its buy rating and NZ$22.00 (A$20.64) price target on the company's shares.
UBS appears to believe there is a chance that a2 Milk will actually outperform its guidance in FY 2020.
Outside this, it has suggested that there could be a new product launch in the medium term. Depending on the market opportunity for this potential product, it seems to think it could be a catalyst to taking its shares up a level again.
Should you invest?
While I think a2 Milk Company's shares are coming close to being fully valued, I would still buy them if you plan to invest for the long term.
I believe the company has a long runway for growth over the next decade thanks to its expanding footprint and lucrative opportunity in the China market.
