At the time of writing, a2 Milk shares are trading at a 16% discount prior to the announcement. Does this represent a good buying opportunity?
A2M share price chart
One way I analyse a2 Milk shares
Whenever I analyse a share before potentially adding it to my portfolio, one of the most important aspects is the assessment of the management team. As an investor, I need to determine, to the best of my ability, if I can trust management in their decision making, and whether their interests are aligned with shareholders.
On this topic, one thing I would point out is that when a2 Milk released its FY20 results and then later an investor presentation on 9 September, there was only a very brief mention of the softening of retail daigou due to reduced tourism from China and international student numbers. At the time, the implied sentiment was strong, with solid anticipated revenue growth into FY21.
Then, just 20 days later, the group released the updated FY21 outlook which caused the a2 Milk share price to plummet overnight.
In my view, this strung-out release of inconsistent results is concerning, to be honest. I felt like if management could release such an accurate outlook on 28 September, this could’ve been mentioned in some detail just 20 days prior at the investor presentation.
Significant insider selling adds to these concerns. Chairman David Hearn got out at a good time, selling 250,000 shares in August this year.
The previous example of the disjointed release of information may seem trivial. But the point is if management can’t be transparent on issues that seem small in nature, how am I or any investor meant to trust them on issues that are actually important?
That said, I think it’s very likely that a2 Milk will make a strong recovery and you’ll probably do quite well out of it if you’re patient enough.
Why I prefer Altium shares
One ASX share I’m more interested in now is Altium Limited (ASX: ALU). Altium develops software for the design of electronic devices and is well-positioned to take advantage of the growing demand for these sorts of products.
On the topic of management, COVID-19 caused Altium to withdraw its earnings guidance for FY20 due to ongoing uncertainty. I like the transparency of this decision; it set a realistic target and informed investors along the way.
Altium 365 was launched in May and provides a cloud-based platform for the design of electronics hardware. The idea is that multiple users can collaboratively work on a single project all from remote locations. Altium 365 already has over 5,000 active users and plans to tap into a huge addressable market that will help drive sales growth.
Click here to read my recent article on Altium that explains why I think it’ll be a winner in the long-term.