The a2 Milk Company Ltd (ASX: A2M) share price has been a strong performer this year.
Since the start of the year the infant formula and fresh milk company’s shares have generated a staggering return of 38%.
In fact, the performance of the a2 Milk share price has been so strong, the company has grown to a size that saw it added to the illustrious ASX 50 index.
It joined the index during the June quarterly rebalance at the expense of embattled financial services company AMP Limited (ASX: AMP).
A2 Milk’s meteoric rise.
It is incredible to think that just five years ago a2 Milk was a small cap and loss-making company flying largely under the radar. Whereas today it is one of the top 50 companies on the ASX and highly profitable.
This meteoric rise has been driven by the insatiable demand for its infant formula products in the Australia and China markets and its expanding fresh milk footprint.
The good news is that I believe there I still a lot more growth in its tank. This is particularly the case in China for its infant formula. Despite its incredible sales growth in the lucrative market, it still only has a consumption market share of 6.6%.
In addition to this, it is worth noting that the company is sitting on a hefty cash balance. At the end of the first half the company had NZ$618.4 million in cash. Given how profitable its operations are, this is likely to have increased even further during the second half.
This is a big positive in my opinion. Because I suspect these funds will be used in the near future to fund potential value accretive acquisitions and new product launches.
In respect to the latter, earlier this week its smaller rival Bubs Australia Ltd (ASX: BUB) demonstrated how an infant formula company can expand into new markets with relative ease. It is launching a range of children’s vitamin products later this year and has secured ranging in hundreds of Chemist Warehouse stores.
Should you invest?
While the a2 Milk share price has been a very strong performer this year, I don’t believe it is too late to invest.
I think a2 Milk remains one of the best growth shares to buy on the Australian share market and believe it is well-positioned to deliver above-average earnings growth throughout the 2020s.
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More reading
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. 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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