Its tough making predictions about Covid and consumer milk...

Its tough making predictions about Covid and consumer milk habits. I tend to focus on what's already happened and use that as a reference point. Before Covid A2M did 50 cents a share for the FY 2020. If you assume that result and return 10 years worth of earnings to investors its $4.49 using a 2% discount rate (no need to use a hurdle rate above the rate of inflation). I would also add the book value given this is a company that can do 30% ROE. 1.43 + 4.49 gives $5.92 which is a present value covering 76% of the current share price.

However A2M doesn't doesn't return money to investors & has high ROE's of 30%, & over the next 10 years it certainly has the potential to increase EPS above 50 cents a share whilst retaining those profits and compounding earnings. This is true even if the rapid growth story is over & it starts paying out dividends.

Of course earnings could go lower than 50 cents. At 0.25 cents a share you get current PE ratio of 30 (which isn't atrocious given the some valuation multiples). However when A2M did 25 cents a share in 2018 it did on on the back of 500 million shareholder equity. Currently the shareholder equity is a little over a billion.

5.92 is my current estimation assuming NO GROWTH & discounting the COVID disruption. Just ask yourself, what's more likely, losing 50% and seeing it go to just over $3, or the stock bouncing back to $15 returning 100%.

Who knows what's happening with Covid and milk consumption & if management can execute strategy. All you can do is put the odds on your side & I think at these prices A2M offers opportunity. I posted before I would buy at 7.5. However given I think a 50-100% gain is possible over the next 3 years I might just buy at market within the next two weeks.