Insights

What next for the a2 Milk (ASX:A2M) share price?

Could you call the A2 Milk Company Ltd (ASX: A2M) share price a cheap growth stock after it slumped to a 2 year low in December?
The post What next for the a2 Milk (ASX:A2M) share price? appeared first on The Motley Fool Australia. –

A2 Baby formula shares

The A2 Milk Company Ltd (ASX: A2M) share price has slumped to a two-year low of $11.59 (as of Tuesday’s close). Its shares have shed more than 40% in value since its August record all-time high of $20.00. With the market darling falling heavily in recent months, could a2 Milk finally be called a cheap growth stock? 

The a2 growth story so far 

A2’s market leading returns, for the most part, are attributed to its phenomenal growth in earnings. 

  FY17 FY18 FY19 FY20
Revenue $352.5 $549.2 $922.4 $1,731
Revenue growth 56% 68% 41% 33%
Net profit after tax (NPAT) $90.6 $195.7 $287.7 $385.8
NPAT growth 198% 116% 47% 34%

Table: author’s own, Data source: a2 Milk full year results 

The company’s most recent earnings update, however, points to its first ever negative year-on-year growth in earnings. It forecasts group revenue for FY21 to be in the range of $1.40 billion to $1.55 billion, which represents a decline of 10.5% to 19%. 

Slump in infant nutrition sales 

Infant nutrition sales, particularly through its daigou and cross border ecommerce (CBEC) channels, has been the centrepiece for the a2 growth story so far. In FY20, infant nutrition sales accounted for 61.5% of the group’s revenue. 

In its first half FY21 and FY21 guidance update, the company flagged that the recent sales performance in the daigou channel has not been as strong as previously expected, and a2 Milk now considers the recovery throughout the remainder of the fiscal year to be slower.

It expects that reduced travel between Australia and China through the remainder of FY21 will continue to negatively impact the seller channel, with grim prospects of a return of a significant number of international students and tourists to Australia during the period. 

As a result, the company forecasts both the daigou and CBEC channels for the remainder of FY21 to be materially lower. 

Smaller revenue segments performing well 

Notwithstanding the significant disruption to its channels noted above, the company advised its recent research again highlighted positive trends in China in lead indicators such as brand awareness and intention to purchase. 

Its China label Mother & Baby Stores (MBS) has remained very strong with an anticipated revenue growth in the first half of above 40% on the prior corresponding period. To add some perspective, its China label achieved $337.2 million of the group’s $1.73 billion revenue in FY20. 

Furthermore, it also noted that its liquid milk businesses in Australia and the US have performed well through the first half, with both businesses posting strong first half FY21 growth as compared to the first half of FY20. 

Broker responses mixed 

Big brokers were surprised with the magnitude of a2’s earnings downgrade and were reserved with their new price targets. On 21 December, Citi retained its sell rating with a price target of $9.50, while Morgan Stanley lowered its price target from $12.40 to $11.00.

Where to 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 are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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.

The post What next for the a2 Milk (ASX:A2M) share price? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!