a2 Milk Company Ltd (Australia) (ASX: A2M) shares have gone from strength to strength in the past six months, as the share price of rival Bellamy's Australia Ltd (ASX: BAL) toppled over.
a2 Milk share price versus Bellamy's Australia share price
As can be seen in the chart above, it has been a tumultuous ride for Bellamy's all the while a2 Milk was showing few signs of slowing down.
The a2 Milk Company is a producer of quality dairy products with a speciality focus on cows producing only the a2 protein. In Australia, these are premium products.
Moreover, in China, where the company sees its real opportunity, the brand's power is equally as impressive. Among other issues, it is in China where Bellamy's has seemingly fallen behind and a2 Milk has powered ahead.
A key difference between a2 Milk and Bellamy's is its supply chain. The latter relies on suppliers and other agreements with third parties to get its product in Chinese mothers' hands.
On the other hand, a2 Milk is vertically integrated, overseeing the product from udder to mouth. While this makes the economics of the business heavier (meaning it has more outgoing costs per unit of revenue), it is arguably a safer business model.
Is it time to buy a2 Milk Company shares?
a2 Milk is a high-risk investment proposition but if it meets regulatory challenges in China and continues to understand its consumers, as it has done in recent times, it could go on to a brighter future. If I were a shareholder I would continue to hold, but buyers may want to wait for a pullback before pulling the trigger on a new position.
