Could Wattle Health Become the Next A2 Milk?

wattle health share price

A2 Milk – One of The Best Aussie Stocks

It’s been one of the best Aussie stocks of the last five years.

Had you bought the stock when it listed in April, you would have made more than 12-times your money.

That would have turned a $10,000 investment into $120,000 in a little over three years.

Oh yes, we all wish we had bought A2 Milk Co. Ltd [ASX:A2M] in early 2015.

A2 milk share price rise

Source: Google Finance

With a market cap of over $5 billion, A2M is one of the largest listed infant formula and milk companies.

In 2017 alone, the stock is up more than 220%, trading at 60-times FY17 earnings. Is their high valuation just? Investors seem to think so. They point to growth from their domestic business and growing sales from China.

In their 2017 annual report, A2M said their a2 Platinum infant formula revenues were up 84%. Revenues from China more than doubled, and earnings before interest, tax, depreciation and amortisation rose 258%.

Clearly investors believe there’s a lot more growth to come.

Wattle Health Australia

Could smaller competitor Wattle Health Australia Ltd [ASX:WHA] experience the same success?

Maybe.

In Wattle’s 2017 annual report, the company grew sales from over 9,000 to almost a million. The group made a loss of $4.1 million. However, losses are understandable at such an early stage.

According to The Australian Financial Review, Wattle also recently struck a distribution deal with a large pharmacy chain.

Wattle is due to come out of a trading halt on the ASX prior to the start of trading on December 7. There is speculation it may have secured shelf space with the Priceline pharmacy chain, which operates 400-plus outlets and is owned by Australian Pharmaceutical Industries. Wattle has been seeking to expand its Australian footprint.

Wattle declined to comment on Wednesday. The company’s shares have been on a rollercoaster ride since listing on the ASX in mid-March this year at an issue price of 20¢.

The shares soared to $2.70 in mid-November even though it was registering modest sales revenue, largely on the strength of future upside in China and a small stake in a Melbourne infant formula packaging facility acquired by a large Hong Kong-based consortium.

But in the past few weeks it has come back with a thud to $1.55, which still makes it one of the most successful floats of 2017.

It already has distribution agreements with AYD in China, Tesco Lotus in China, and Metcash and some of its IGA and Foodland outlets in Australia. It also sells in Baby Mode retail stores in Australia and JR Duty Free stores, which was its first main avenue to market.

Cheers,

Härje Ronngard,

Junior Analyst, Money Morning

PS: Want to find more stocks with the potential to double, triple or even quadruple your money?

Check out these three small-cap stocks trading on the ASX right now. According to our small-cap guru, Sam Volkering, they could be on the verge of extraordinary growth.

Harje Ronngard

Harje Ronngard

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.

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