Here’s why this top fund manager is cautious on the a2 Milk Company (ASX:A2M) share price

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The a2 Milk Company (ASX:A2M) share price has gained 76 per cent over the past 12 months, making it one of the top performing ASX 200 shares in that period.

In August, the company reported full year profit more than doubled thanks to continued strong demand for its baby formula in Australia and China.

a2 Milk estimates its Platinum formula holds only about 5 per cent of consumption market share in China, and has put in place plans to expand the on-the-ground team’s capabilities.

Writing in its August 2018 monthly update, the top performing Yarra Emerging Leaders Fund said it believes the current valuation of 33.6 times earnings fully captures a2 Milk’s positive outlook.

The fund said a2 Milk’s earnings growth over recent years has been underpinned by Chinese infant formula sales, which have grown significantly.

However, the fund is cautious about capitalising this earnings momentum given questions
regarding the sustainability of the current distribution channels — in particular via daigous– an increasing competitor presence, and the fickle nature of the Chinese consumer.

The Yarra Emerging Leaders Fund has an underweight position in a2 Milk shares.

a2 Milk shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

a2 Milk was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than a2 Milk. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au