The A2 Milk share price has climbed 10% so far this month. What's going on?

We check what's behind the sudden optimism for A2 Milk shares.

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Key points

  • The A2 Milk share price has seen a 10% rise so far in August
  • Despite delays in gaining FDA approval to supply infant formula to the US market, management remains confident
  • Another A2-branded competitor is considering listing on the ASX to take on A2 Milk

The A2 Milk Company Ltd (ASX: A2M) has been frothing up a storm in August, shooting up 10%.

The company's shares closed on Wednesday at $4.98 apiece after starting the month at $4.54.

So why has the A2 Milk share price been climbing lately?

The US opportunity

It seems its peer Bubs Australia Ltd (ASX: BUB) has regenerated excitement in the milk formula businesses after securing a major supply deal in the US and posting a stellar quarter for June 2022.

However, A2 Milk hasn't experienced the same success. It has actually hit a bit of a roadblock in its bid for access to the US market, as outlined by my colleague Sebastian Bowen.

On 12 August, the US Food and Drug Administration (FDA) advised it had to defer further consideration for an enforcement discretion to import infant milk formula products into the United States.

According to the Sydney Morning Herald, another A2 Milk competitor Bellamy's gained FDA approval shortly after Bubs.

Despite the hold up, A2 Milk CEO David Bortolussi remains confident. Bortolussi told the SMH the company had the relationships necessary on the ground to handle distribution and made the following comment:

Feedback from our US team on the ground is that the infant milk formula crisis has not been solved, with significant retail out-of-stock issues continuing across the country.

If Bortolussi's optimism comes to fruition, a major contract in the US will act as a significant growth driver for the A2 Milk share price.

Another competitor considers ASX listing

The Australian Financial Review recently reported that another infant formula company Care A2 Plus is preparing for an ASX listing.

Care A2 Plus produces infant and toddler formula using single-sourced milk from Australian grass-fed A2 cows in Victoria. Unlike A2 Milk, it managed to gain approval from the FDA in early July to supply millions of tins to retailers short of supply.

The company advised the AFR that its first orders for Care A2+ Premium Infant Formula with iron were due to ship to the US in August.

Dominic Galati is the founder of Care A2 Plus and a former SBS executive.

Its chairman Walter Bugno said the company has more than 300 shareholders, including Chemist Warehouse.

A2 milk share price snapshot

The A2 Milk share price looks horrid across the last 12 months, falling 25% but the recent US shortage has driven it higher.

Across the same period, the S&P/ASX 200 Index (ASX: XJO) dropped 5% and like A2 Milk, it rallied with a 7% jump in the last month.

Given the roadblock and the potential listing of a competitor, which is already supplying to the US, it's quite curious to see the A2 Milk share price climbing of late.

Motley Fool contributor Raymond Jang 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. 

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