The A2 Milk Co Ltd (ASX: A2M) share price has underperformed the S&P/ASX 200 Index (ASX: XJO) so far in 2023.
Year-to-date the ASX 200 has gained an impressive 7.1% while the A2 Milk share price is right about where it started the new year.
But, according to Adam Lund, co-founder of Spheria Asset Management, the dairy company is well positioned to turn that around and outperform over the full year.
Image source: Getty Images
The ASX 200 share remains 'somewhat overlooked'
In our fund manager interview with Lund, he said the A2 Milk share price was among the top performers for the fund in 2022.
Having previously held shares in the company, Spheria added the stock back into their portfolio in 2021.
"We thought it was being irrationally priced by the market and the re-rate we anticipated came as new management returned the business to growth, cleaned up the inventory position and steadied the strategy of the business," Lund told us.
That was 2022.
But the fund manager remains optimistic about the outlook for the A2 Milk share price in 2023 as well.
According to Lund:
A2 is a high-quality growth business, and even after the recent rally, it still remains somewhat overlooked by the market. The turnaround driven by CEO David Bortolussi, who stepped into the business in 2021, is well underway.
Among reasons to be bullish on the stock, Lund cited A2 Milk's "enviable position" with importing infant formula into China with its "high margin and highly differentiated product".
"It's a strong cash generative business, capex light and has multiple potential longer term growth drivers," he added.
As for the metrics, Lund said:
A2 has significant cash on its balance sheet with over $780 million of net cash. And it trades at only around 2.5 times enterprise value (EV) to sales and some 18 times enterprise value to earnings before interest and taxes (EBIT).
A2 Milk share price snapshot
As you can see in the chart below, the A2 Milk share price has had a really strong run over the past six months, up 38% since 8 August.
