The A2 Milk Company Ltd (ASX: A2M) share price has been through a lot of volatility since COVID-19 started.
But some analysts now see an opportunity with the infant formula and liquid milk company.
What has been going on with the A2 Milk share price?
Over the last year the A2 Milk share price has fallen by 56%. That makes it one of the worst performers in the ASX 200 (ASX: XJO) over that time period.
A2 Milk saw a huge demand for its products, namely its infant formula, in the early part of COVID as people stocked up their pantries.
In FY20, it saw total revenue of $1.73 billion, this was a rise of 32.8%. The net profit increased 34.1% to $385.8 million.
But FY21 saw the good numbers turn bad. Revenue fell 30.3% to $1.21 billion and net profit sank 79.1% to $80.7 million.
Several negative factors worked together to hurt the A2 Milk share price and profit. There has been a huge slowdown of demand from the daigou/reseller channel. A2 Milk had too much inventory. Chinese customers have been buying more products from local Chinese brands.
Is it a buy?
According to reporting by the Australian Financial Review, some investors are now thinking that the A2 Milk share price may well be good value now.
The newspaper noted that fund manager Perpetual Limited (ASX: PPT) has been building a position in the business as it fell to approximately $5.50 per share.
It was also noted that the chief investment officer of 1851, Chris Stott, recently called A2 Milk a buy on a Livewire video, where he said:
“The a2 Milk Company has fallen from market darling to market dud, hasn’t it? So, that’s normally when you want to buy.
We think that, at the moment, they’ve got through the worst in terms of their fall-away in earnings, particularly to China and the daigou channel, so we think they’re getting through the worst of that.”
So is the A2 Milk share price an opportunity?
It could be. The business is still doing quite well with physical retailers in China, called mother and baby stores. The cross-border e-commerce (CBEC) channel could still do well over the long-term. But, there’s a chance that A2 Milk may never make the same profit from Chinese customers.
Plus, the lower A2 Milk share price certainly prices in a lot of the Chinese troubles. A2 Milk still has plenty of potential in Asia (excluding China), Australia, New Zealand, the US, Canada and any other regions it expands to.
