A2M share price in focus
Founded in New Zealand in 2000, The a2 Milk Company sells dairy products which contain the naturally occurring A2 protein type. Most other dairy products on the market contain the A1 protein, which is claimed to be harder to digest for some people.
The company is responsible mainly for distribution and marketing, with the production outsourced to suppliers who source from over 25 certified dairy farms across Australia. A large part of the a2 business is infant formula, which is produced by its supply partner Synlait Milk in New Zealand.
While the science is a little uncertain on why a2 milk might be easier to digest, randomised studies have repeatedly shown that it is an effective solution for many people who struggle with ‘normal’ dairy products.
WES shares
Wesfarmers is a diversified Australian conglomerate headquartered in Perth. It’s essentially a listed investment company with outright ownership or significant stakes in companies across retail, chemical, fertiliser, industrial and safety brands and products.
Wesfarmers has a long history of buying businesses, re-investing in them to grow cash flow and assets, then selling them off for a higher price. A good example of this is Coles Group, which it bought in 2007 and spun out in 2018. However, most of the company’s operating profit (over 50%) comes from Bunnings Warehouse, the #1 hardware and home improvement business in Australia (and the country’s most trusted brand in 2023 & 2024). Wesfarmers originally bought into Bunnings in 1987, buying the final 52% in 1994 for $594 million.
Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy. Wesfarmers has been a leading blue chip stock on the ASX for decades and is known for paying a consistent dividend.
A2M & WES share price valuation
As a growth company, one way to put a broad projection on the A2M share price could be to compare its price-to-sales multiple over time. This can tell us how the company has historically been valued relative to its total revenue.
Currently, A2 Milk Company Ltd shares have a price-sales ratio of 4.27x, compared to its 5-year average of 3.44x, meaning its shares are trading above their historical average. This could mean that the share price has increased, or that sales have declined, or both. In the case of A2M, revenue has been growing over the last 3 years. Of course, context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric, but this can be a rough starting point.
Since WES is more of a ‘blue chip’ company, we could look at its dividend yield to determine its value. If we compare it to the historical dividend yield, we can get a sense of the stability of the company and its ability to pay out income. WES is paying a trailing dividend yield of around 2.67%, which compares to its 5-year average of 3.36%.
This is just one of many ways you could put a value on WES shares. The Rask websites offer free online investing courses, created by analysts explaining valuation methods like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets which can help you learn how to value a company like A2M or WES.
