A2 Milk Company Ltd (ASX: A2M) shares have been considered a staple in many investors’ portfolios for some time.
Over the last three months, it has brought much excitement to these investors with its nearly 34% rally to $11.83. That’s enticing, but is it really sustainable? Let’s take a look at the numbers…
The Numbers
a2 Milk Company has been a strong performer for a number of years with its return on equity (ROE) being above 20% in 2016 and above 35% in the last two years. On top of that, profit/earnings per share (EPS) growth has averaged 80.47% annually over the last three years.
Consensus forecasts from Morningstar predict EPS to continue to grow at a rate of over 30% for the next two years, and they also expect that a2 Milk Company will pay its first dividend in 2019, with the forecast being for $0.055 per share.
Some of its growth can be attributed to a2 Milk Company’s collaboration with China State Farm Holding Shanghai Co., Ltd. (CSFA Shanghai), who is the exclusive importer of a2 Milk Company products in China.
One concern is the Cross-Border E-commerce (CBEC) changes in China that could result in changes to regulation or taxes.
Obviously, the last few months have been a tense time for relations between the US and China and as a result, any business dealings with China should be approached cautiously in such uncertain times.
Summary
a2 Milk Company’s recent growth and promising opportunities firmly entrench its spot as a portfolio staple. A word of warning though: much of the exciting news and forecast growth may already be factored into the share price. Don’t expect to see another 34% increase in the next few months.
It still remains to be seen how trade tensions with China could affect exporting and whether a2 Milk Company will start paying dividends this year. If you’re looking at a2 Milk Company, it is a company to invest in for the long term and not one to use for short-term speculative gain.
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