This new catalyst could make A2 Milk shares a buy

A fund manager says A2 Milk shares are an exciting prospect.

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A2 Milk Company Ltd (ASX: A2M) shares have been on a volatile journey over the last year. The share price is up 36% in 2024, but down 10% over the past 12 months.

A fund manager has picked out the dairy stock as an opportunity because of a potential catalyst that could send A2 Milk shares higher.

No one can say for sure when a share price is going to go up, but certain events can excite investors. Let's look at why we should pay attention to this business that sells milk products that only contain the A2 protein type.

Exciting catalyst for A2 Milk shares

The investment team from Wilson Asset Management (WAM) have picked A2 Milk for the WAM Active Limited (ASX: WAA) portfolio.

Here's one of the main reasons why they like the stock:

We believe that the launch of its new products in the second half of FY24, which include a2 Gentle Gold, two new English label infant formula products, and fortified milk powder products, positions the company to continue to deliver revenue growth.

WAM pointed out that A2 Milk recently reported an FY24 half-year result which beat market expectations.

The A2 Milk HY24 earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 5%, with an increased market share in the Chinese infant milk formula market.

A2 Milk managed to achieve that despite a double-digit decline in the Chinese birth rate.

The WAM investment team said they were pleased to see A2 Milk decided to increase its FY24 revenue growth guidance from low to low-to-mid single-digit percent compared to the prior year.

Single-digit revenue growth may not sound exciting, but a share price usually includes a number of underlying assumptions. If the revenue achieved is better than expected, then it can be a catalyst to send the A2 Milk share price higher.

Valuation

Based on the current A2 Milk share price and using profit projections on Commsec, it's valued at 26 times FY24 estimated earnings and 19 times FY26's estimated earnings.

Time will tell if WAM is right to be excited about the dairy company, or whether things are going to go sour and other ASX shares would be better picks.

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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. 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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