When the Bubble Bursts

I note the anxiety spreading among a lot of holders of A2M as the inevitable Milk Powder Bubble starts to leak.

I also note the increasing number of people desperately espousing the difference between A2M and the rest of the pack.

PERSPECTIVE TIME

Positives
- A2M does indeed have a significant point of difference with the rest of the pack
- It is a Niche product with would appear to have many health benefits for the segment of the market that suffer from milk tolerance issues
- It enjoys strong Brand recognition within China and is penetrating the US and European markets
- At this stage there are few competitors in this space espousing similar benefits
- The demand outlook looks strong

Negatives
- A2M is in the Milk Powder segment. Until it performs as a stand alone within this segment, it will be subject to the macro impacts of the market.
- In a risk averse market, A2M is currently valued on future earnings which are at least 150% larger than their current guidance. Share price is a compilation of expectation, risk appetite and industry sentiment. If the risk appetite disappears then it is logical for the share price to move closer to reflecting current earnings
- A2M can not ramp up production at the same rate as its competitors thereby limiting its production growth. This will undoubtedly need significant investment to ensure the Company can take advantage of demand

A2M has the opportunity to become a reliable growth stock well into the future. It must still prove to the market that it can convert potential into year on year profit growth. I believe this will come in time. But it needs time.

Irrespective of what valuations you place on future growth, the fact still remains A2M isn't there yet. At over 50 times Guidance PE for FY16, and with the Milk Bubble seemingly ready to burst, I am not surprised to see the SHORT side build on A2M.

Does this change the long term potential for A2M - Absolutely Not! This is just par for the course as a Company grows.

I think too many people here have unrealistic expectations on both the Company's performance and the Markets willingness to accept these forward moving valuations.

If you believe in A2M long term - stick them in the bottom drawer and come back in a couple of years. Unless of course you get a take over notice in the interim.

Until then - let the market do what the market will do. Good Companies emerge from these bubbles in a strong position.

Relax