Are A2 Milk (ASX:A2M) shares a buy? The case for and against

Stocks for this Kiwi dairy producer have nosedived since the pandemic closed international orders, and the price is now at 2017 levels.

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Arguably no ASX share has been pummelled more by COVID-19 than poor A2 Milk Company Ltd (ASX: A2M).

An unexpected closure of international borders badly exposed just how reliant the New Zealand dairy business was on sales from expatriate Chinese resellers (daigou) flying back and forth.

The stock hit a closing price of $19.83 in early July 2020, but it has since tumbled almost 70% to leave shareholders fuming.

In fact, some are so angry they're launching multiple class actions against the company they own.

But now that the world is entering the post-pandemic era and the share price is at levels not seen since 2017, are A2 Milk shares a bargain buy?

Two experts offered very different takes on this dilemma:

I just bought more A2 Milk shares last week

Shaw and Partners senior investment adviser Adam Dawes reckons "the worst is over" for A2 Milk.

"We've had a couple of downgrades, we've had management change, it's ticked all the boxes on the way down. It starts to look pretty good here," he told Switzer TV Investing.

"When we do start to accept some international passengers, the daigous could potentially start coming back."

The low share price and the comeback potential could attract a takeover bid from a bigger player.

"That's what the market's waiting for. We are all hoping that this one's a takeover and that could be the catalyst for A2 Milk to start to re-rate."

Dawes certainly put his money where his mouth is.

"I'm still a buyer of A2. I bought some last week."

The Chinese market will never be the same again

Burman Invest chief investment officer Julia Lee disagrees with Dawes, recommending investors stay away from A2 Milk.

"The reason for that is the major growth engine for A2 Milk was really China," she said.

"And in China I think we have seen a fundamental shift where instead of preferring those overseas brands because of safety… we are seeing a push to domestic brands, and that seems to be working."

Lee has a soft spot for A2 Milk and wants to see it become a "buy", as her fund made great money from its growth after buying the shares at around 80 cents some years ago.

But the world has moved on.

"It's a lot harder for international brands to grow in China, especially A2 Milk, which does look like it's been losing ground," she said.

"I probably wouldn't be buying A2 Milk. I think there are better opportunities."

Motley Fool contributor Tony Yoo owns shares of A2 Milk. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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