The A2 Milk Company Ltd (ASX: A2M) and Audinate Group Ltd (ASX: AD8) both experienced challenging trading sessions last week following their FY20 results.
Could these 2 ASX growth shares present a buying opportunity at today's prices? Or could the subtle sell-off mean that more time is needed?
Well-rounded result from a2 Milk
The a2 Milk share price fell 5% last week following its FY20 full year report. The company reported that COVID-19 has had a modest positive impact on its revenue, while favourable foreign exchange movements further propped up earnings. The company highlighted a 32.8% increase in revenue to NZ$1.73 billion and 34.1% increase in net profit after tax (NPAT) to NZ$385.8 million.
From a geographic perspective, a2 Milk continues to build its market leading position in Australia within fresh milk and infant nutrition segments. The ANZ segment revenue increased 14.6% to NZ$965.7 million. China still represents a significant runway for a2 Milk's growth with its investments in brand, trade activities and people driving strong sales momentum. Its 'China and other' segment revenue did the heavy lifting for its FY20 earnings and soared 65.1% to NZ$699.4 million.
The US market continues to scale meaningfully, with a distribution and national footprint of over 20,000 stores. Its revenue was up 91% to NZ$66.1 million, however, increased marketing investment and distribution growth resulted in an earnings before interest, taxes, depreciation and amortisation (EBITDA) loss of NZ$50.5 million. The impact of COVID-19 in the US market is significant as consumers become more value conscious.
The a2 Milk share price had a considerable run up leading into earnings season. Being priced to perfection combined with the uncertainty of FY21 performance may have led to the sell-off last week. Its Asia-Pacific segment will continue to be a growth engine for the business, while the US market will require more time. All things considered, I believe a2 Milk represents fair value at today's price, but feel that more time is needed to see where the share price is headed, post-earnings.
Underwhelming earnings from Audinate
Audiante develops and sells digital audio visual networking solutions that distribute high-quality digital audio and video signals over computer networks. The company announced its FY20 results on Thursday last week, which then saw its share price fall more than 8%.
Audiante is a very challenging company to value, given its $400 million market cap, 7.1% increase in revenue to $30.3 million and EBITDA of $2.0 million. Despite what appears like stretched valuations and lacklustre growth, the company is a leader in the digital media networking space with a total addressable market of more than A$1 billion. Its products have 8x market adoption versus its closest competitor.
I believe the way in which the market could value this company is very similar to the likes of Altium Limited (ASX: ALU) in its early days. However, despite Audinate's position in the market, I would like to see the company deliver better growth figures before considering it an ASX growth share to buy.
