A2 Milk shares are down 19% this past month. Is it time to pounce?

It's been a volatile year for the milk company.

| More on:

Should you invest $1,000 in Woodside Petroleum Ltd right now?

Before you buy Woodside Petroleum Ltd 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 Woodside Petroleum Ltd 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

A woman is unsure as she pours milk into a glass, has it gone sour?

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

Shares of A2 Milk Co Ltd (ASX: A2M) have been heavily sold recently and are down more than 16% in the past month.

The specialist milk company now fetches $5.19 per share at the time of writing, holding onto a 22% gain for the year.

These levels might seem like an ideal entry point for investors hunting potential bargains in the ASX consumer sector.

But given the challenges A2 Milk has faced, is now the right time to add this ASX stock to your portfolio? Let's see what the experts think.

Created with Highcharts 11.4.3A2 Milk PriceZoom1M3M6MYTD1Y5Y10YALL1 Nov 20237 Nov 2024Zoom ▾Nov '23Jan '24Mar '24May '24Jul '24Sep '24Nov '24Jan '24Jan '24Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24www.fool.com.au

What's pressuring A2 Milk shares?

A2 Milk shares have struggled over the past year as the infant formula market in China continues to face headwinds.

According to the company's FY24 numbers, sales to China's infant formula market saw a sharp decline throughout the year, with volume down 8.5% and transaction value down 11%.

Management put this down to the unflavoursome recipe of fewer newborns, rising competition, and tighter economic conditions.

Despite these obstacles, A2 Milk achieved a 52% jump in revenue, clipping nearly $1.7 billion at the top line.

The company grew net profit by over 9%, boosting cash reserves by 28% as a result.

Then, in late September, China announced a raft of fiscal stimulus measures aimed at supporting the economy and lifting the country's highly leveraged property sector.

The package was 2 Trillion Yuan, equal to about US$28 billion at the time. Critical to A2 Milk however was the language from the Chinese Ministry of Finance.

It noted a chunk of the payment will be used to give $114 "per child" to households with 2 or more children.

With the stimulus measures announced, consumer staples stocks surged, and plenty of names in the nutrition sector caught inflows.

Such was the frenzy that lifted the bid on A2 Milk shares that the ASX intervened and hit the company with a "please explain" letter.

The excitement was short-lived, however, with shares retreating from highs of $6.46 on October 10. They now trade in line with their level just prior to the China stimulus announcement.

Broker insights: What's the verdict?

Turning to the broker crowd, there's a mixed outlook on A2 Milk shares. Ten analysts rate the stock a hold, and five rate it a buy.

The consensus target price is around $6.80. Meanwhile, forward estimates for A2 Milk is to earn 22 cents per share in FY25.

At the current share price of $5.19, this values the company at a multiple of 23.5 times earnings, meaning you'd pay $22 for every dollar of the company's profits.

Two brokers have turned constructive on the company in recent months.

Citi reaffirmed its buy rating with a target of $7.04 last month. The broker's rating is driven by the potential impact of Chinese government stimulus, specifically aimed at boosting birth rates and consumer spending.

Analysts speculate that additional parental allowances could support the infant formula market and potentially lift A2 Milk's prospects.

Meanwhile, Bell Potter recently upgraded its view on the company, rating it a buy in an October note.

According to my colleague Bernd, the broker raised its price target on A2 Milk shares to $6.10, which represents a more than 17% upside potential from current levels.

Foolish takeaway

A2 Milk shares have been under pressure lately, but the stock still has broker support. Both Citi and Bell Potter remain cautiously optimistic about the company's potential to navigate the Chinese market's challenges.

Zooming out, the stock is up more than 32% in the past year.

Citigroup is an advertising partner of Motley Fool Money. Motley Fool contributor Zach Bristow 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.

More on Consumer Staples & Discretionary Shares

Couple look at a bottle of wine while trying to decide what to buy.
Consumer Staples & Discretionary Shares

Treasury Wine Estates shares down 21% this year amid resurgent China demand

Are Treasury Wine Estates shares a bargain?

Read more »

I young woman takes a bite out of a burrito n the street outside a Mexican fast-food establishment.
Consumer Staples & Discretionary Shares

Guzman Y Gomez shares are down 22% this year. Time to buy?

Should I buy the dip in Guzman Y Gomez shares?

Read more »

supermarket asx shares represented by shopping trolley in supermarket aisle
Dividend Investing

Should I buy Coles shares for their reliable passive income?

We take a look at Coles’ passive income credentials and the potential for share price gains.

Read more »

man looks at phone while disappointed
Consumer Staples & Discretionary Shares

Guess which ASX 300 stock is down 9% on guidance downgrade

Investors are rushing to the exits today. But why? Let's find out.

Read more »

Supermarket trolley with groceries going up the stairs with a rising red arrow.
Consumer Staples & Discretionary Shares

Woolworths shares have soared 18% since March. Here's how much upside Macquarie still expects

Having raced higher since March’s multi-year lows, just how high can Woolworths shares go?

Read more »

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 »