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The a2 Milk Company Limited (NZSE:ATM): Poised For Long Term Success?

Simply Wall St

In December 2018, The a2 Milk Company Limited (NZSE:ATM) released its earnings update. Generally, the consensus outlook from analysts appear fairly confident, as a 30% increase in profits is expected in the upcoming year, though this is evidently lower than the previous 5-year average earnings growth of 71%. With trailing-twelve-month net income at current levels of NZ$196m, we should see this rise to NZ$255m in 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

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Check out our latest analysis for a2 Milk

How is a2 Milk going to perform in the near future?

Longer term expectations from the 13 analysts covering ATM’s stock is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To get an idea of the overall earnings growth trend for ATM, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

NZSE:ATM Past and Future Earnings, May 21st 2019

By 2022, ATM's earnings should reach NZ$368m, from current levels of NZ$196m, resulting in an annual growth rate of 21%. EPS reaches NZ$0.62 in the final year of forecast compared to the current NZ$0.27 EPS today. Margins are currently sitting at 21%, approximately the same as previous years. With analysts forecasting revenue growth of 0.89921 and ATM's net income growth expected to roughly track that, this company may add value for shareholders over time.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For a2 Milk, there are three pertinent aspects you should look at:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is a2 Milk worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether a2 Milk is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of a2 Milk? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.