The A2 Milk Company Ltd (ASX: A2M) share price has been one of the standout performers on the S&P/ASX 200 Index (ASX: XJO) during the coronavirus crisis.
Despite a bit of a push back during May, the company’s share price has risen strongly since the end of January. Sitting at $14.51 only 4 months ago, a2 Milk’s shares are now trading at $17.26 at the time of writing. These gains also follow on from a strong share price rally throughout last November.
Is the a2 Milk share price still a buy?
Strong growth during the March quarter
Let’s first take a recap on a2 Milk’s recent financial and operational performance.
In a trading update in late April, a2 Milk outlined that it has continued to see strong growth since late February, across all regions.
Revenue for the March quarter was in fact, above expectations. The coronavirus pandemic saw many consumers stock up a2 Milk’s products, especially through online and reseller channels.
In particular, demand for its infant nutrition products sold in China and Australia has been very strong.
EBITDA margin predicted to exceed expectations
In addition, higher levels of marketing investment in China and the USA will hopefully pay off for a2 Milk. Both these markets still offer huge growth potential.
This investment is likely to help deliver higher overall revenue growth across key regions during FY 2020. It is also likely to lift a2 Milk’s full year EBITDA margin above the range it advised in February.
It is now predicted to be between 31% to 32%, assisted partly by favourable currency exchange rate movements.
A very healthy result, if it can be achieved.
Is it too late to buy shares in a2 Milk at today’s price?
a2 Milk has been among the top performing shares on the ASX since it listed back in 2015.
The company has cleverly evolved into a highly trusted and recognised brand, renowned for its quality. a2 Milk is now also a very profitable business, after initially running at a loss.
I see no reason why the a2 Milk success story can’t continue, driven by very strong growth opportunities in North America and China.
However, the a2 Milk share price is now definitely looking at bit pricey.
Furthermore, the coronavirus crisis has added some uncertainty regarding earnings growth over the short term with the possibility that both supply chains and consumer demand will be impacted. This could bring about further share price volatility for a2.
Having said that, I still think the company represents a reasonably good buy and hold option for investors with a long-term investment horizon.
I prefer it over other infant formula providers such as Bubs Australia Ltd (ASX: BUB) and Nuchev Ltd (ASX: NUC).
Over the next 5 years I think a2 Milk will continue to be a strong performer and that this is likely to translate to above average share price growth.
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Phil Harpur owns shares of A2 Milk. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended BUBS AUST FPO. 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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