Shares in the A2 Milk Company Ltd were the 8th most traded on the ASX last week according to Commsec data.
Since reaching lows of just over $5 last month, A2’s shares have rallied close to 20% to the current share price of $6.03 at the time of writing.
Is the pain finally over for shareholders of A2?
A2M share price
What’s caused the share price turnaround?
When shares hit a 52-week low of $5.04 last month, that represented a drop in market valuation of close to 75% since reaching highs of over $20 per share last year.
Despite the challenges that A2 may still be up against, there comes a point where any company can start to look attractive solely based on valuation grounds.
Now that the trend appears to have reversed for the moment, some investors may be thinking the worst is over for the A2 share price.
What else?
Another catalyst that could explain some of the upwards movement in A2’s share price was the announcement of a Chinese policy change to allow couples to now have three children.
Prior to this policy, Chinese couples were limited to two children each as a way to curb explosive population growth.
The rationale here is that there could be an increased demand for A2’s infant nutrition products with a larger addressable market.
However, my colleague, Raymond Jang discusses in his recent article why this policy change might not have as much effect as some may think.
More recently, it was revealed that the US is investigating a reported leak at a Chinese nuclear power plant.
Not too much more information has been provided as of now, but it would seem that investors could be buying up A2’s shares thinking that consumers may preference imported products rather those that are domestically produced.
Is it finally time to buy shares?
There’s certainly been a change in the sentiment towards A2’s shares, but I’d rather be looking for evidence in the form of financial results before I would consider becoming a shareholder.
If your belief is that A2’s daigou and cross-border e-commerce (CBEC) channels will rebound to that of pre-COVID levels, the current share price may represent fantastic value.
This isn’t a belief I hold personally, as I think Chinese consumers will prefer domestic products over foreign brands such as A2. For a more detailed explanation on this, click here to read: A2 Milk (ASX: A2M) shares are now below $6… Is it finally time to buy?
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