So far this year the a2 Milk Company Ltd (Australia) (ASX: A2M) share price has rocketed higher by over 18%, bringing its 12-month return to a whopping 46%.
Despite this gain I don't believe it is too late to invest in the fast-growing dairy company. Here are three reasons why I think a2 Milk would be a great investment today:
Reason 1: Chinese sales.
Although rival Bellamy's Australia Ltd (ASX: BAL) fell from grace in the massive China market at the end of last year, a2 Milk has gone from strength to strength. In its most recent half-year results the company reported a massive 348% increase in sales into China and Asia. One key driver of this growth was the company's success online in the nation. Sales volumes of a2 Platinum more than doubled year-on-year during the Chinese Singles Day shopping event, leading to it becoming the number one infant milk formula brand on JD.com.
Reason 2: Chinese tailwinds.
Despite the success it has had, the company estimates that its share of its core market in the country is just 2.6%. In my opinion this means there is significant room for growth in the future. Especially with China's middle class rising rapidly. According to research from McKinsey & Company, approximately 76% of China's urban population will reach middle class status by 2022. By my estimate this means a middle class of at least 550 million people. With the one-child policy now withdrawn, I expect there will be a large number of middle class families in the market for infant formula products.
Reason 3: Value for money.
Although at 29x trailing earnings a2 Milk's shares might look expensive compared to the market average, I think its earnings growth more than justifies the premium. Whilst there is a danger of a sell-off if the company fails to live up to the market's high expectations, at this point in time I feel quite confident that the company will deliver another solid full-year result later this year.
For these reasons I would choose a buy and hold investment in a2 Milk ahead of rivals Bellamy's, Bega Cheese Ltd (ASX: BGA), and Bubs Australia Ltd (ASX: BUB) today.
