Should you buy a2 Milk Company shares right now?

Is the a2 Milk Company Ltd (ASX:A2M) share price in the buy zone right now? Here's why I think it would be a great long term option…

| 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 strong performer this year.

Since the start of the year the infant formula and fresh milk company's shares have generated a staggering return of 38%.

In fact, the performance of the a2 Milk share price has been so strong, the company has grown to a size that saw it added to the illustrious ASX 50 index.

It joined the index during the June quarterly rebalance at the expense of embattled financial services company AMP Limited (ASX: AMP).

pouring glass of milk from glass milk bottle

Image source: Getty Images

A2 Milk's meteoric rise.

It is incredible to think that just five years ago a2 Milk was a small cap and loss-making company flying largely under the radar. Whereas today it is one of the top 50 companies on the ASX and highly profitable.

This meteoric rise has been driven by the insatiable demand for its infant formula products in the Australia and China markets and its expanding fresh milk footprint.

The good news is that I believe there I still a lot more growth in its tank. This is particularly the case in China for its infant formula. Despite its incredible sales growth in the lucrative market, it still only has a consumption market share of 6.6%.

In addition to this, it is worth noting that the company is sitting on a hefty cash balance. At the end of the first half the company had NZ$618.4 million in cash. Given how profitable its operations are, this is likely to have increased even further during the second half.

This is a big positive in my opinion. Because I suspect these funds will be used in the near future to fund potential value accretive acquisitions and new product launches.

In respect to the latter, earlier this week its smaller rival Bubs Australia Ltd (ASX: BUB) demonstrated how an infant formula company can expand into new markets with relative ease. It is launching a range of children's vitamin products later this year and has secured ranging in hundreds of Chemist Warehouse stores.

Should you invest?

While the a2 Milk share price has been a very strong performer this year, I don't believe it is too late to invest.

I think a2 Milk remains one of the best growth shares to buy on the Australian share market and believe it is well-positioned to deliver above-average earnings growth throughout the 2020s.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. 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 Share Market News

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Broker Notes

Buy, hold, sell: Goodman Group, BHP, Westpac shares

ASX 200 shares are in the red for a fifth consecutive session amid stalled peace talks between the US and…

Read more »

Business man marking Sell on board and underlining it
Broker Notes

Experts name 3 ASX 200 shares to sell now

Let's see which shares are being tipped as sells this week.

Read more »

A man and a woman sit in front of a laptop looking fascinated and captivated.
Broker Notes

What is Morgans' updated view on Bank of Queensland and PLS shares?

These ASX 200 stocks are performing very differently this year.

Read more »

A construction worker sits pensively at his desk with his arm propping up his chin as he looks at his laptop computer.
Broker Notes

Are these ASX materials stocks a buy, hold or sell according to Morgans?

Morgans is optimistic on these shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles with a laptop open.
Broker Notes

Analysts pick 3 ASX 200 stocks to buy

These stocks have been given buy ratings this week. Here's what you need to know about them.

Read more »

One young boy jumps off a step ladder and is captured mid-air about to land on a see-saw where his friend is standing with a wide smile on his face looking at the camera and holding his thumbs up as though he is excited for the ride to come. Both boys are wearing business suits.
Capital Raising

NextDC shares dip as retail offer opens. Here's what you need to know

NextDC shares pull back as the retail entitlement offer opens.

Read more »

Businesswoman holds hand out to shake.
Share Market News

Atlas Arteria receives a takeover offer

The initial offer price of $4.75 per security is a 9.7% premium to the last close and up to 19%…

Read more »

A woman in a red dress holding up a red graph.
Broker Notes

Three ASX 200 shares the Jarden team says are a buy right now

Looking for a bargain? These shares might fit the bill.

Read more »