NEW: Invest with Owen RaskLaunching in March 2024: Rask Invest goes live, providing the first-ever opportunity to invest with Owen, Chief Investment Officer. Click here to learn more.
Menu
Menu
Search by ticker code:
NEW: Compare ETFs SIDE BY SIDE 👀Use our free tool to compare ASX ETFs & managed funds side-by-side.
Search by ticker code:
A2 Milk Company Ltd (ASX:A2M) – an Australian monster stock
Matt Joass, CFA is a concentrated small-cap growth investor and Chief Investment Officer at Maven Funds Management. You can receive more of his investing insights and reach out to him on his personal website mattjoass.com.
Matt Joass from Maven Funds Management explains why he bought a2 Milk Company Ltd (ASX: A2M) and why he considers it a monster stock.
This is the story of how a little company from New Zealand grew to become a 14 billion dollar giant, the signs that indicated a big future ahead, and the tale of one of the greatest blunders in Australian business history. It is also the story of how we can apply the principles of what I call monster hunting to our own investing, and use the lessons on our quest to find the next potential winner while it is still small and undiscovered.
Featured video: Matt Joass’ #1 money advice
The Monster next door
I first purchased my shares in a2 Milk (ASX:A2M) in late 2015. It’s been a fun ride. In just four and a half years the shares have delivered a 2,200% return for shareholders. In annualised terms that is an incredible 99% per year. Past performance is no guarantee of future returns, both for our stock selection, and the business itself. Also, as we’ll talk about later it’s been a wild ride too. Holding on required enduring multiple occasions where the share price slumped, up to 30% or more, sometimes for more than a year.
It’s no secret that A2 Milk has generated strong returns for long-term shareholders. Bloomberg even named it as the best performing stock in the world:
It may have been the decade of smartphones, on-demand everything, and Instagram memes, but the prize for the world’s best-performing stock in the MSCI World Index goes to a dairy company in New Zealand.
But what a lot of this coverage misses is an understanding of how the company did it. A2 Milk is my favourite applied example of monster hunting. It’s not because of the returns (although sure, those are nice too). It’s because of how the business delivered those returns.
This was a company that could be purchased at multiple times throughout its growth journey for a very reasonable price. Its business is simple and its customer value proposition is easy to understand. Most of all, the returns were not driven by price swings, they were primarily driven by astounding organic earnings growth.
When I first purchased shares in late 2015, the total market capitalisation of the entire company was approximately $560 million NZ dollars (note: for simplicity I will refer to NZ dollars throughout this article unless otherwise noted). In 2015, a2 Milk had recently tipped past break-even and was generating $1.2m of EBIT from $155m of revenue.
Fast forward to today and the business is forecast to generate $560m of EBIT this year. Approximately the same as the company’s entire market cap in 2015. Revenue is now forecast to be $1.725 billion at the midpoint of guidance. Not only that but the company now holds $618m of cold hard cash and has another $260m worth of listed investments in its supplier Synlait Milk (ASX:SM1) representing a 19.84% stake.
$50,000 per year in passive income from shares? Yes, please!
With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.
So how do the best investors do it?
Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.
You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.
(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)
Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.