(Asx: A2M) | A2 Milk | BUYING

Oct 16, 2020

We are buying A2M.

Target price to sell: $18

Stop Loss: $13.75 | -6%

Profit: 20%

Strategy: BGS 20 Strategy

Weight on our portfolio: 10%

Lead time: 1 month to 3 months.

Huge presence in Australia, New Zealand and China.

Revenue in this quarter and the share price were significantly affected by disruption in the daigou distribution channel due Victoria’s lockdown, hence most definitly affecting the company’s short term profit. The company has also antecipated that this impact is likely to continue for the remainder of the first half of FY21.

For those whom don’t know, sales in the Daigou channel represents a significant proportion of infant formula sales in the company’s Australia and New Zealand business.

Nevertheless the fundamentals of the company remains pretty strong as the compay has just declared in August a 40% return on equity with record annual profit of $385M and an increase of revenue of over 30%.

Key Facts we have taken in this Analysis:

  • Executive sell off and covid impact possibly has been already priced in.
  • Strong support around $14
  • Several fast recovers on the company’s share price as show in the chart.
  • Great share price range to fulfil BGS 20 Strategy on a great company.
  • Share price is trading 8.75% under SMA
  • EMA trading 9% under SMA
  • Share Price is currently trading above EMA for 3 consecutive days, becoming the first indicador of a possible reversal
  • Heiken Ashi Chart shows a bullish consolidation with increased volumes.

What are the next confirmation indicadors to watch?

  • SP has to do a bullish intersection on SMA and maintain trading above EMA.
  • EMA has to do a bullish intersection on SMA.
  • Volume has to steadly increase when the share price moves up and decrease when the share price moves down.

What are the key risks of the stock not going up:

  • Future lockdowns in Victoria, New South Wales, China and New Zealand.
  • Next quarter financial reports numbers don’t meet the company’s guidance.