Is the A2 Milk (ASX:A2M) share price a buy after the selloff?

Is it time to buy A2 Milk shares?

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The A2 Milk Company Ltd (ASX: A2M) share price is having a better day on Thursday.

In afternoon trade, the infant formula company’s shares are edging 0.5% higher to $6.06.

This follows another selloff on Wednesday which saw the A2 Milk share price plunge 12%.

Is the A2 Milk share price selloff a buying opportunity?

One leading broker that has held firm with its positive view on the A2 Milk share price is Bell Potter.

This morning the broker retained its buy rating and $7.70 price target on the company’s shares.

Based on the current A2 Milk share price, this implies potential upside of almost 28% over the next 12 months.

What did the broker say about A2 Milk’s update?

Bell Potter notes that there were a number of takeaways from the company’s investor update.

One of those was the company’s medium term target of growing its revenue to NZ$2 billion in the next ~5 years.

It commented: “A2M has a medium term risk adjusted revenue target of ~NZ$2.0Bn with EBITDA margins in the teens and scope to lift to low-mid 20’s subject to mix and market share gains. Major drivers of this growth are: (1) a 50% recovery of the FY20-21 fall in English label IMF sales; (2) a ~NZ$400m uplift in China label sales from MBS expansion and higher sell through rates in mature stores; and (3) China nutritionals product portfolio and regional expansion.”

Bell Potter also notes that the company is continuing to try and make things work in the US market. Though, it doesn’t appear supportive of this.

The broker said: “Volumes up in Australia and down in the US. At face value we see the continued commitment to remain in the US a negative. The strategy has been augmented a number of times since entry and to date has failed to generate any semblance of a pathway to profitability. We would have expected a move to licence the brand (like in NZ) and remove a ~NZ$30m EBITDA loss would be received positively.”

Staying buy rated

Nevertheless, Bell Potter saw enough in the update to remain positive on the A2 Milk share price.

It concluded: “There is no change to our Buy rating. The key to A2M is how much English label sales recover in 2H22e-1H23e and the extent to which A2M can expand its MBS distribution touchpoints. If A2M can deliver on just these two aspects of its strategy, then we would see a pathway to ~NZ$1.7-1.9Bn revenue and ~NZ$300-350m EBITDA business, with upside if it can back integrate processing into MVM and reduce US losses.”

Should you invest $1,000 in A2 Milk right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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