The A2 Milk Company Ltd (ASX: A2M) share price has rocketed 26.9% higher in 2020 but can it really continue to surge higher?
Why the A2 Milk share price is climbing
It’s been a wild start to the year for most ASX shares but A2 Milk has proven to be a real outperformer.
The Kiwi dairy group’s shares have been surging in value thanks to strong consumer demand. In fact, A2 Milk’s April trading update contained some good news for investors.
The company couldn’t provide any revenue or earnings guidance for FY20 due to the pandemic. However, A2 Milk does anticipate ongoing revenue growth in key regions such as China and the USA.
The Board expects A2 Milk to target an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 30% in FY20.
There’s also been media speculation that the company is looking at strategic options relating to its manufacturing capacity and capability. That led the company to address those rumours yesterday saying it would provide an update “if and when any such discussions were to reach a conclusion.”
Both of these things say to me that there could be more growth on the way for A2 Milk. That could lead to increased earnings and a boost for the A2 Milk share price in 2020.
Of course, a lot of this is speculation. I think it’s worth waiting until there’s some confirmation about expansion plans from the company itself before buying in.
The A2 Milk share price is now up 2,734.4% in the last 5 years. That means a $10,000 investment in A2 Milk back then would be worth a tidy $279,230.77 in today’s money.
Foolish takeaway
I don’t know if the A2 Milk share price will close the year higher than its current $18.14 valuation.
However, I think the technical environment is looking good and I’m quietly bullish on the Kiwi dairy group.
If you’re looking for a long-term growth prospect, A2 Milk could be one of those ASX shares that’s worth a look in 2020.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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