A2M share price in focus
Founded in New Zealand in 2000, The a2 Milk Company specialises in dairy products that contain the naturally occurring A2 protein type, sold under the a2 brand.
The company does not produce its products directly but partners with over 25 certified dairy farms across Australia, where suppliers handle the production. Additionally, its instant formula products are manufactured by its supply partner, Synlait Milk, in New Zealand.
A key selling point of a2 Milk is its claimed health benefits, particularly its easier digestibility compared to regular milk. This makes it a suitable option for people who typically experience digestive issues with standard milk.
The key metrics
For investors, A2M’s revenue, gross margin, and profit can provide value insights into the company’s performance.
A2M last reported an annual revenue of $1,673m with a compound annual growth rate (CAGR) over the last 3 years of 11.6% per year. While the absolute number is useful to know, the key point is the trend. We want to see a consistent, upward trajectory in revenue.
Gross margin measures profitability before taking into account overhead costs – it reflects the strength of the company’s core business operations. A2M’s latest reported gross margin stood at 45.8%.
Finally, the number we’re most interested in – profit. Last financial year A2 Milk Company Ltd reported a profit of $168m. Three years ago when they made a profit of $81m, representing a CAGR of 27.6%.
Financial health of A2M shares
Profitability is important, but equally important is the capital health of the company. We want to know about the company’s leverage, their capacity to pay debts, and their ability to generate a return on assets. One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
A2 Milk Company Ltd’s current net debt currently sits at -$903m. Higher debt levels can increase sensitivity to interest rate changes and economic cycles.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity – this is also known as leverage. A2M has more equity than debt, with a debt/equity ratio of 5.3%.
Finally, we can look at the return on equity (ROE). The ROE tells us how efficiently the company is turning shareholder equity into profit – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. A2M generated an ROE of 12.8% in FY24.
What to make of A2M shares?
With strong revenue growth over the last 3 years, profits trending upwards, and a solid ROE, the A2M share price could be one worth watching in 2025.
Please keep in mind this should only be the beginning of your research. It’s important to get a good grasp of the company’s financials and compare it to its peers. It’s also important to make sure the company is priced fairly. To learn more about share price valuation, you can sign up for one of our many free online investing courses.
