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Why the a2 Milk Company share price tumbled lower today

James Mickleboro
share price down

The market may be pushing notably higher on Tuesday, but the same cannot be said for the A2 Milk Company Ltd (ASX: A2M) share price.

In afternoon trade the infant formula and fresh milk company’s shares are down over 3% to $13.43.

Why is the a2 Milk Company share price under pressure today?

Today’s decline appears to be related to a note out of Goldman Sachs this morning in respect to Chinese ecommerce sales data.

According to the note, the sales data showed that growth in milk formula sales is slowing down.

Goldman notes that in 2018 new births in China dropped to 15.23 million, down 12% year on year. It doesn’t expect to see a change in this trend in 2019 because the number of new marriages has declined since 2013 and is putting pressure on first child numbers.

In addition to this, the boost from the second child policy has diminished since 2017 and there has been a structural decline in the number of women of child bearing age in the country.

Goldman added: “If we were to assume the birth rate of new married couples stays flat vs. 2018, this would imply a 5% reduction in new births in 2019 to 14.5mn. We believe this, combined with the aforementioned unfavorable demographics, is likely to weigh on the infant population growth in China over the next decade.”

In light of this, it expects negative volume growth in milk formula sales in China from 2020.

However, it is worth noting that despite this, the broker remains positive on a2 Milk Company and has retained its buy rating on its shares.

It estimates that a2 Milk Company’s sales grew 30% online in China in May, compared to the prior corresponding period.

And looking ahead, it appears confident that a2 Milk Company is going to continue to win market share in China even if regulators put a new action plan in place to promote local producers. So, concerns over the softening infant formula market might be unnecessary at this stage, potentially making today’s share price weakness a buying opportunity. 

Elsewhere in the industry, Bellamy’s Australia Ltd (ASX: BAL) and Bubs Australia Ltd (ASX: BUB) shares are trading mixed this afternoon.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Bellamy's Australia and BUBS AUST FPO. 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