Why I'm watching the a2 Milk share price

The a2 Milk share price has been resolute during recent market volatility, continuing its upward trend. Here's why I'm still watching it.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The a2 Milk Company Ltd (ASX:A2M) share price has been a bellwether during the coronavirus pandemic. Whilst many companies on the ASX 200 have seen their share prices hammered, a2 Milk has remained largely immune to the widespread volatility and continued its positive upward trend. Here's why I'm still watching it.

Why watch the a2 Milk share price?

The essential nature of products like infant formula has seen demand for a2 Milk products surge during the pandemic. In a trading update in late April, a2 Milk confirmed its revenue for the 3 months to 31 March were above expectations. According to the company, demand was fuelled by changing consumer behaviour with many consumers looking to stockpile essential products during the height of lockdowns.

The company reported strong revenue growth across all key regions, especially for its infant nutrition products in China and Australia. Revenue from China was also favourably impacted by a depreciation of the New Zealand dollar relative to the US dollar.

Reinforcing the company's resilience during the pandemic, a2 Milk was recently added to the prominent S&P/ASX 50 Index during the June rebalance.

What is the outlook for the a2 Milk share price?

In the trading update, the company revealed it is expecting revenue for FY20 to be in the range of N$1,700 to NZ$1,750 million. In addition, a2 Milk anticipates full-year EBITDA margins to be above prior expectations at around 31% to 32%. Although a2 Milk expects exceptional revenue growth, the company also flagged the potential for COVID-19 to impact its supply chains and consumer demand in the future.

Citibank analysts have advised a $21.50 target for the a2 Milk share price, suggesting the potential for further upside. According to analysts, a2 Milk is well placed to deliver strong results for the second half of 2020 and could be an indirect beneficiary of the coronavirus pandemic. With consumers continuing to stockpile essential items such as infant formula, the company could see a further surge in revenue.

Should you buy?

In my opinion, any company that performs strongly in current market conditions is one to watch. Not long ago, many analysts had a sell rating on a2 Milk based on the thesis that the company could not sustain its high margins in a more competitive market.

a2 Milk has proven not only that it can sustain growth during these testing times, but that it is also poised to continue delivering in 2020 and beyond. Having said that, the a2 Milk share price is currently trading close to all-time highs at $19.52. Therefore, I think a prudent strategy would be to wait until the August reporting season to ensure that the results have not already been priced in.

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »