Since its time of listing back in 2015, the A2 Milk Company Ltd [ASX:A2M] share price has just kept growing. The Auckland-based company has not only become a market heavyweight with a market cap of $12.2 billion, but also a money factory for investors.
Risks are growing though. With the A2M share price trading at $16.47 at the time of writing (down 2.36%), fears could be creeping in that China’s huge appetite for the company’s products could be drying up.
What’s happening at a2 Milk?
a2 Milk made themselves a fantastic business model, focusing its efforts on the places that matter most, where the company could generate the best return.
The result of this is basically a money-printing machine. Year-on-year everything just kept moving up.
So much so that when COVID-19 arrived, it was nearly a non-event in the company’s stock price.
With such a strong foundation in place and the need for baby formula, business kept ticking along.
China has proved to be the biggest growth market for a2 Milk over the years, and they’ve had a heavy reliance on a2 products since the baby formula contamination scandal, which sidelined China-based makers in preference for international brands like a2, Bellamy’s Australia, Nestlé SA and Danone SA.
But Chinese authorities are hoping to reboot confidence in the country’s recovering domestic industry. Key measures outlined by the regulators included a goal of 60% self-sufficiency for infant formula and a higher market share for domestic brands.
This measure by the Chinese government may shrink the market share available for companies like a2 Milk.
Where to from here for the A2M share price?
For the foreseeable future, a2 Milk will remain a very well-run company.
The China–Australia relationship is starting to fray — you’ve likely seen the headlines.
Let’s take a quick look at the A2M share price chart:
The A2M share price has sold off a bit on the weekly, and if it continues to decline then the levels of $15.84 and $14.03 may provide future support.
If it can find a way to turn to the upside, then the levels of $17.25 and $19.20 may become the future focus.
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