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.