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3 ASX shares on my May watchlist

Audrey Thehamihardja
watch, watch list, observe, keep an eye on

The Afterpay Touch Group Ltd (ASX: APT), A2 Milk Company Ltd (ASX: A2M) and Webjet Limited (ASX: WEB) share prices performed exceptionally in April, far outshining the S&P/ASX200 which grew just 0.22%.

In April alone:

• The Afterpay share price grew 14.3% to $25.59.
• The A2 Milk share price is up 16.8% to $15.96.
• The Webjet share price is up 15.8% to $16.86.

On Afterpay

Afterpay allows users to pay for purchases over four instalments every fortnight interest-free. The company has been performing exceptionally, it posted stellar HY results and ongoing announcements on its strong international expansion.

Afterpay recently released more detailed plans to launch in the UK, driving the stock price up 6.7% yesterday. The company plans to enter the European market via its existing brand ClearPay, as this would be the quickest entry point. Beyond lucrative earning potential, the company recognises the talent advantages in the UK market particularly for security hires.

Afterpay is operating on a high price-to-sales ratio of 41.25x. However, investors who didn’t buy in previously from seemingly inflated share prices are losing out. Afterpay’s share price continues to grow and I expect the company to beat market expectations in its FY earnings.

On A2 Milk

A2 Milk is an Australian company that sells A1 protein-free milk. Like Afterpay, A2 Milk posted strong HY earnings having grown its EBITDA 52.7% to $218.4 million. The company has had very strong success in the Chinese market through Daigou channels where its competitors like Bellamy’s Australia Ltd (ASX: BAL) have not.

Recently, A2 Milk launched ‘a2 Smart Nutrition’, a powdered milk which doesn’t contain A1 casein protein. This has been particularly attractive for Chinese consumers. The new products in the pipeline have helped the company make ground in China, growing its market share in the baby formula market to 6% from 5.4% in December 2018. A2 Milk expects to continue upping its marketing spend to further drive growth in this lucrative segment.

The company currently operates on a whopping 85.72x multiple and I don’t see this rocket isn’t running out of fuel any time soon.

On Webjet

Webjet is both a B2c and B2B digital travel agency. It enables users to compare and combine flights, accommodation, packaged holiday deals, insurance and hire cars domestically and internationally.

What has been particularly impressive about Webjet’s business this year is its B2B segment. WebBeds is Webjet’s accommodation booking platform that connects travel agents and tour companies with hotel operators. Bookings in this segment were up 50% and time to value by 65%. Furthermore, future growth sentiments remain high for the Asia-Pacific region.

The company is also expecting a FY guidance of $120 million which is 37% higher than 2018 earnings. Webjet might seem expensive at its 42x PE ratio, but this factors strong market expectations and product success to date.

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Motley Fool contributor Audrey Thehamihardja has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. The Motley Fool Australia has recommended Bellamy's Australia and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019