The A2 Milk share price has bubbled 10% higher in a month. What's going on?

Why are A2 Milk shares outperforming the ASX 200?

| More on:
A little Asian girl is so excited by the bubbles coming out of her bubble machine.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The ASX's previously high-flying infant formula business is rising
  • A2 Milk investors may be encouraged by what Bubs is reporting
  • A2 Milk is expecting to report revenue growth in the second half of FY22

The A2 Milk Company Ltd (ASX: A2M) share price has gone up by around 10% since 22 June 2022. That compares favourably to the S&P/ASX 200 Index (ASX: XJO), which has risen by just over 4%.

That's quite a bit of outperformance over a short period.

A2 Milk is a large dairy business that sells infant formula, protein-free milk, and other milk products.

Let's have a look at what may be affecting things, aside from just the wider market climbing.

Strong demand

One of A2 Milk's main competitors, Bubs Australia Ltd (ASX: BUB), recently reported that it's experiencing a lot of growth, which may (or may not) be a positive indicator for A2 Milk.

For the three months to 30 June 2022, Bubs revealed that gross revenue had increased by 278% to $48.1 million. Half-year gross revenue of $65.7 million was up by 71% half on half.

It also reported it had seen sustained growth momentum across all key product segments (including its A2 product) and all key markets (including Australia, China and the United States).

While some of this growth came about from Bubs' activities in the US, it also reported promising signs in Australia and China.

Australian domestic retail sales revenue of infant formula saw growth of 31% year on year.

Bubs' Chinese sales were up 523%, largely due to corporate daigou sales. However, cross-border e-commerce sales were up 20%.

A2 Milk expecting to report growth in the second half

When A2 Milk announced its FY22 half-year result, the company said that the revenue growth outlook for the business in FY22 had improved.

However, it also said the expected improvement in revenue is not likely to translate into higher earnings in FY22 as it increases its investment to drive growth.

Even so, revenue in the second half of FY22 is still expected to be "significanly higher" than the second half of FY21, with anticipated growth compared to the first half of FY22 and FY22 being ahead of initial expectations mainly because of growth in infant formula sales.

However, it did warn that COVID-19 impacts on the supply chain have increased and are/were a key risk in the second half.

Is the A2 Milk share price a buy?

Some recent broker opinions are neither optimistic nor pessimistic.

For example, the broker Credit Suisse has a price target of $5.15 on the business, with a neutral rating. That implies a possible rise of more than 10%. The company notes recent sales strength in China.

Citi is also neutral on the business, with a price target of $4.64. So, the broker isn't expecting much movement from here over the medium-term.

Should you invest $1,000 in The A2 Milk Company Limited right now?

Before you buy The A2 Milk Company Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and The A2 Milk Company Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 and BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

A customer and shopper at the checkout of a supermarket.
Consumer Staples & Discretionary Shares

Broker watch: Are Woolworths shares a buy?

Do analysts think this supermarket giant would be a good pick for investors? Let's find out.

Read more »

Supermarket trolley with groceries on top of a red pointing arrow.
Consumer Staples & Discretionary Shares

Up 31% in a year, just how much more upside does Macquarie tip for Coles shares?

Can Coles shares smash the ASX 200 returns again in the year ahead?

Read more »

A customer and shopper at the checkout of a supermarket.
Consumer Staples & Discretionary Shares

Woolworths shares storm higher on strong Q3 update

The supermarket giant outperformed expectations during the quarter.

Read more »

A woman holds up hands to compare two things with question marks above her hands.
Consumer Staples & Discretionary Shares

Compare the pair: Accent Group vs JB Hi-Fi shares

Which is a better option out of these two consumer discretionary shares. 

Read more »

person sitting at outdoor table looking at mobile phone and credit card.
Consumer Staples & Discretionary Shares

If I could only own 1 ASX retailer for the next 5 years it would be this one

This stock could be a great long term pick according to one leading broker.

Read more »

A couple in a supermarket laugh as they discuss which fruits and vegetables to buy
Consumer Staples & Discretionary Shares

Coles share price drops on Q3 update

Let's see how the supermarket giant performed during the three months.

Read more »

Business man with a cigar in his mouth counting US dollars.
Consumer Staples & Discretionary Shares

Both Labor and the Coalition to crackdown on illicit tobacco trade, which ASX stocks could benefit?

Could a tobacco crackdown benefit these stocks?

Read more »

Young girl drinking milk showing off muscles.
Dividend Investing

Up 41% in 2025, how this ASX 200 dividend stock is primed for 'continuing growth'

A leading expert expects ongoing growth from this high-flying ASX 200 dividend stock.

Read more »