The a2 Milk Company Ltd (ASX: A2M) share price is down 3.44% over the past week despite more positive news from China.
The a2 Milk Company is one of the largest infant formula producers in Australia and New Zealand. It also manufactures a2-only protein-based dairy products. It has operations in New Zealand, Australia, China and the USA.
Positive Growth On E-commerce Platform
According to Goldman Sachs, sales of a2 Milk on e-commerce platform Alibaba (NYSE: BABA) grew by 89% in February compared to the same corresponding period last year. On the back of this positive news, investors may be asking why the share price is down this week?
In February the company reported 41% growth in total revenue. Additionally, the infant formula business reported revenue growth of 45% which can be attributed to its China label revenue growing 82.6%.
Rask Media’s Jaz Harrison has full details of a2’s most recent financial report in this article. After the details of this report were released a2 Milk’s shares saw substantial gains, which have now placed the price of the business at a premium.
Concerns For Investors
The growth of a2 is currently resting on its success in China. While a2’s popularity among the Chinese population is multiplying, any change to this will affect the overall performance of the business.
There is also a risk that China’s relationship with international importers could change at any time. The most recent risk to a2 was Australian and New Zealand company’s becoming scapegoats during the “trade war” between the US and China. This risk now seems to have abated, but any future tensions between China and the Western economy could affect the business.
Is A2 A Buy?
Putting aside any diplomatic concerns, a2 Milk appears to be one of the best growth companies listed on the ASX. Despite its lofty valuation, the growth in China should continue with the company focusing heavily on marketing in the country.
When compared to its rival, Bellamy’s Australia Ltd (ASX: BAL), a2 looks to be the better investment. For growth investors, a2 Milk would be a good buy to hold over the next five to ten years.
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At the time of publishing, Jack does not own shares in a2 Milk.
