Why did the A2 Milk share price smash the market with a 22% gain in August?

The A2 Milk Company Ltd (ASX: A2M) share price was a very strong performer in August.

During the month, the infant formula company’s shares recorded a gain of 22%.

This means its shares absolutely smashed the ASX 200 index, which recorded a modest 0.6% gain during the month.

Why did the A2 Milk share price smash the market?

It was looking likely to be another average month for the A2 Milk share price in August until it released its surprisingly strong full year results with three trading sessions remaining.

For the 12 months ended 30 June, A2 Milk reported a 19.8% increase in revenue to NZ$1.446.2 million and a 42.3% jump in net profit after tax to NZ$114.7 million. The latter was ahead of the market consensus estimate of NZ$113.9 million.

This was driven by double digit infant formula sales growth for both its China label and English label products. Management advised that this reflects its significant increase in marketing investment, which drove further gains in brand health metrics and record market shares.

Also giving the A2 Milk share price a boost was the company’s outlook commentary. Management provided guidance for high single digit revenue growth in FY 2023 thanks largely to its infant formula business.

But the good news doesn’t stop there. With A2 Milk sitting on a mountain of cash, it has decided to reward its long-suffering shareholders with a NZ$150 million on-market share buyback.

A2 Milk’s managing director and CEO, David Bortolussi, commented:

Our on-market buyback of up to NZ$150 million demonstrates effective capital management and the improved confidence we have in our strategy, execution and outlook.

Can its shares keep rising?

One leading broker believes the A2 Milk share price still has room to climb even after August’s heroics.

According to a recent note out of Bell Potter, its analysts have upgraded the company’s shares to a buy rating with an improved price target of $6.35.

So, with its shares currently fetching $5.70, this suggests there’s still 11.5% upside ahead for them.

The post Why did the A2 Milk share price smash the market with a 22% gain in August? appeared first on The Motley Fool Australia.

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More reading

• How do A2 Milk shares stack up against Bubs post-earnings season?
• Here are the top 10 ASX 200 shares today
• These were the best performers on the ASX 200 in August
• Broker says A2 Milk share price can keep rising
• Here are the top 10 ASX 200 shares today

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 Scott Phillips.

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