Is it too late to buy a2 Milk shares?

The a2 Milk Company Ltd (ASX:A2M) share price has been a big mover over the last 30 days. Is it too late to invest?

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One of the best performers on the Australian share market over the last month has been the a2 Milk Company Ltd (ASX: A2M) share price.

During this time the infant formula and fresh milk company's shares have put on a gain of 14%.

Why is the a2 Milk share price up 14% in a month?

Investors have been fighting to get hold of a2 Milk Company's shares after it released a half year result that smashed the market's expectations.

In the first half of FY 2019 the company posted a 41% increase in total revenue to NZ$613.1 million and a massive 55.1% lift in net profit after tax to NZ$152.7 million.

This strong result was underpinned by impressive growth in both the ANZ and China markets. The ANZ business segment delivered a 37.5% increase in revenue to NZ$418.4 million and a 64.9% jump in EBITDA to NZ$192 million.

Backing up this growth was its China and Other Asia segment which posted a 50.1% lift in revenue to NZ$171.7 million and a 41.6% increase in EBITDA to NZ$68.4 million.

Once again it was infant formula products that generated the most sales for the company. Infant nutrition product sales rose 45.3% to NZ$495.5 million, meaning they account for almost 81% of sales now. Liquid milk sales rose 20.2% during the half.

Is it too late to invest?

Based on management's guidance for similar revenue growth in the second half and an EBITDA margin of 31% to 32%, I expect revenue of NZ$1.3 billion and EBITDA of ~NZ$416 million in FY 2019.

If all else remains equal, I expect this to lead to a net profit after tax of NZ$291 million and earnings per share of 41 NZ cents (39.3 AU cents). Which means that its shares are currently changing hands at 35x estimated forward earnings.

Whilst this is clearly a premium to the market average, given its current growth profile I feel this is a fair price to pay to own its shares.

I would choose them ahead of Bellamy's Australia Ltd (ASX: BAL) and Bubs Australia Ltd (ASX: BUB) at this point.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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