At the current share price, is A2 Milk Company Ltd (ASX: A2M) the best growth share on the ASX?
The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.
Is The A2 Milk Share Price Very Attractive?
A2 Milk has been one of the best growth shares on the ASX over the past few years. Since April 2015 the A2 Milk share price has risen by around 2,400%. That’s some performance!
However, some investors believe that it is still one to consider despite the impressive growth.
Marcus Tuck from Mason Stevens mused on Livewire that some of the keys to finding outperforming businesses to look for safe balance sheets, free cash flow generation, high return on equity, healthy profit per share (EPS) growth and an attractive valuation.
So, some of the things that Mr Tuck looks for is net cash on the balance sheet, return on equity above 15%, growth of EPS to be more than 10% each year for the next three years and a PEG ratio of below 1.10. The PEG ratio takes the current price/earnings ratio and compares it to the estimated growth rate.
According to Mr Tuck’s calculations, A2 Milk has a PEG ratio of 1.00, a return on equity of 48.4% and is expected to grow profit by around 30% per year for the next three years. As you may have been able to calculate, A2 Milk is valued at 30 times its next twelve months’ of earnings.
The only other three ASX shares to pass Mr Tuck’s criteria were Noni B Limited (ASX: NBL), Jumbo Interactive Ltd (ASX: JIN) and Service Stream Limited (ASX: SSM).
There are many risks involved with investing, including paying too much for a quality business. There are very few businesses that are immune from economic cycles and can fend off all competition. However, having net cash on the balance sheet may be one of the best ways to provide protection.
A2 Milk isn’t the only business growing rapidly. The growth shares revealed in the free report are also impressing with revenue growth and business progress.
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