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I know you get a lot of queries regarding A2 Milk and I know both yourself and Paul have been fans. I did my own research and whilst I didn’t get in at the $13 to $14 range, as most of your readers may have done I got in at $10. One of my reasons was buying a stock which was $20 for $10 gives me a fair bit of margin of safety but now it looks like this will touch sub 7’s or even high 6’s.
I think most of us know the issues with A2M, given the border closures etc but there seems to be a lot of negativity tied to this stock at the moment. My question is in your view if I have a 2 year view from now do you think it can get back to $10 or is the growth and high margin days behind this company. I realise its a difficult one to answer but over 2 years I am hoping I can recover my capital.
A: Peter and I were talking about A2 Milk today. We recorded a slot for tomorrow’s Investing Show. A2M is one of the 3 stocks Peter said that he is buying right now.
A2 Milk continues to be under pressure for a couple of reasons. Firstly, Management has lost credibility with the market – 3 downgrades in a very short period – which says that either they were way too optimistic and didn’t understand what was really going on, or they didn’t want to tell the market the whole truth. So, how do you trust them now? The market fears a fourth downgrade. The other negative is that the data says that Chinese local brands are winning share – meaning that when A2M can access the daigou trade and some of the other restrictions are lifted, they may have to compete harder on price (or spend more on marketing), which implies a lower margin.
I like A2M for the long term. As the category leader, I think the company is worth quite a bit. I don’t think that a rise back to $10 in the next 12 months is off the cards – but you will need to be patient. I think it may be too early to call it “a bottom”. But, I know I can’t sustainably “buy at the bottom” or “sell at the top”.
Regards
