A2M share price in focus
Founded in New Zealand in 2000, The a2 Milk Company sells dairy products which contain the naturally occurring A2 protein type. Most other dairy products on the market contain the A1 protein, which is claimed to be harder to digest for some people.
The company is responsible mainly for distribution and marketing, with the production outsourced to suppliers who source from over 25 certified dairy farms across Australia. A large part of the a2 business is infant formula, which is produced by its supply partner Synlait Milk in New Zealand.
While the science is a little uncertain on why a2 milk might be easier to digest, randomised studies have repeatedly shown that it is an effective solution for many people who struggle with ‘normal’ dairy products.
WOW shares
Founded in 1924, Woolworths is the leading supermarket operator in Australia and New Zealand with over 3,000 stores and over 100,000 employees. In terms of revenue and market share, it’s also one of Australia’s largest companies across any sector.
Besides the supermarket we all know (but don’t exactly love, according to consumer trust rankings), Woolworths Group also operates discount department stores under the Big W brand, as well as business-to-business (B2B) brands like PFD, which is a foodservice distributor. However, the 35%+ market share of Australian groceries is undoubtedly its crown jewel and leading revenue driver.
Woolworths has historically been a popular choice for ASX investors seeking dividend income due to its fully franked dividends, usually at a yield of over 3%. It also offers a ‘defensive’ earnings stream with most of its revenue coming from consumer staples. That means in an economic downturn, Woolworths might be less likely than other companies to see revenue decline significantly.
A2M & WOW share price valuation
As a growth company, one way to put a broad projection on the A2M share price could be to compare its price-to-sales multiple over time. This can tell us how the company has historically been valued relative to its total revenue.
Currently, A2 Milk Company Ltd shares have a price-sales ratio of 4.15x, compared to its 5-year average of 3.44x, meaning its shares are trading above their historical average. This could mean that the share price has increased, or that sales have declined, or both. In the case of A2M, revenue has been growing over the last 3 years. Of course, context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric, but this can be a rough starting point.
Since WOW is more of a ‘blue chip’ company, we could look at its dividend yield to determine its value. If we compare it to the historical dividend yield, we can get a sense of the stability of the company and its ability to pay out income. WOW is paying a trailing dividend yield of around 4.60%, which compares to its 5-year average of 2.92%. This is just one of many ways you could put a value on WOW shares. The Rask websites offer free online investing courses, created by analysts explaining valuation methods like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets which can help you learn how to value a company like A2M or WOW.
