Declining birth rates could threaten the A2 Milk (ASX:A2M) share price

Credit Suisse believes declining birthrates could mean the A2 Milk Company Ltd (ASX: A2M) share price recovery never gets back on track

| More on:
pouring glass of milk from glass milk bottle

Image source: Getty Images

Brokers remain divided on what’s next for the battered A2 Milk Company Ltd (ASX: A2M) share price. And for once, it almost feels as though there is no right or wrong answer. 

On one hand, A2 Milk has emerged as an iconic brand with a unique product in the dairy industry. Its shares held an Afterpay Ltd (ASX: APT) like status, driven by its outstanding growth and capital returns. This has led some brokers to highlight the potential medium-to-long term value in the company once sales channels stabilise.

But a large part of the company’s growth story has been associated with China and Chinese-related sales channels. As the infant formula industry continues to rapidly evolve in China and with daigou channels on hold, it didn’t take long for some brokers to say it’s time to move on. 

Another downgrade for the A2 Milk share price 

COVID-19 may have accelerated the global phenomenon of an aging population and declining birth rates. 

Credit Suisse has called out that the aggregate number of babies of infant formula age could be 30% lower in 2025. That is compared to 2018. 

The broker believes that the theme of declining birth rates could see the fall of the infant formula industry contract in China. It also says that this trend could undermine the growth from increased usage of milk formula. 

A2 Milk revenues are expected to recover in the medium-to-long term. However, the broker cites that its FY25 net profit will approach but not surpass the peak of FY20. 

As a result, the broker rated the A2 Milk share price as underperforming with a $7.15 target price. 

Share price snapshot 

On a monthly chart, the A2 Milk share price has closed lower every single month since August 2020, with the exception of November 2020. November was likely propped up by the sheer strength of the broader market, with the ASX 200 rallying 10% from 5,900 to over 6,500. This perhaps reiterates why investors should avoid trying to catch a falling knife.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Fallers