Short sellers of a2 Milk shares have been caught with their pants down after favourable research has seen its share price push on to another record high.

The dual-listed alternative milk company and infant formula company is often targeted by short sellers - particularly in Australia where the practice is more widespread.

Short selling is the sale of a share that the seller has borrowed.

The short seller profits if the share price declines by picking it back up later at a lower price, but when the market turns in the stock's favour, the shift higher can make the move more dramatic than it would do otherwise, triggering a short covering rally.

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By close of trading, shares in New Zealand's biggest company by market capitalisation were trading at $15.77, up 54 cents or 3.55 per cent, having rallied by more than 4.2 per cent on Monday.

The stock has rallied by about 22 per cent in the last 12 months and has been a key factor behind the New Zealand share market's record-breaking run.

"It's been a reasonably heavily shorted stock so it looks like some short sellers have seen the research, bitten the bullet, and covered their shorts, which normally contributes to a bit of share price reaction," Oyvinn Rimer, senior research analyst at Harbour Asset Management said.

"I don't think the short selling story is particularly material, but it might add some extra momentum to a share price in the event of positive news," he said.

UBS - in a first quarter update on China's infant formula market - said the big players Danone, Nestlé and Abbott have seen their bestseller market shares decline, but that a2 Milk had had positive momentum for another quarter.

The analysis was based on online B2C (business to customer) data (15-20 per cent of the market). Trends might be different in other channels," UBS said.

UBS said B2C regulation in China looked manageable.

"Early feedback suggests little impact Regulatory focus has intensified on cross border e-commerce (B2C) and daigou import channels since the fourth quarter of 2018," UBS said.

"Our early feedback is that it has had little impact, and may longer term be a positive via consolidation driving improved pricing discipline," UBS said.

"We expect a slow start of the year for both Reckitt Benckiser and Danone's China infant milk formula business.

"Trends for A2 look positive, with share of bestsellers up 2.5 percentage points year on year and pricing improving," it said.

UBS said it expected a2 Milk to report a strong second half.

"A2 Milk's performance in China remains the primary near-medium term share price driver with China infant milk formula to make up more than 70 percent of full year 2019 sales," it said.

UBS had a "neutral" trading on a2 Milk but saw there was near-term risk to the upside via potential consensus upgrades.

"We continue to believe the medium term outlook for a2 Milk remains robust with the US opportunity potentially undervalued," it said.

Market research firm Motley Fool singled out a2 Milk, and two other stocks, as being key performers in the Australian market so far this year.

"Since the start of the year the S&P/ASX 200 index has recorded a gain of 10.7 per cent Whilst this is impressive, it is nothing compared to some of the gains that have been made on the index," it said.

The a2 Milk share price has rallied 36 per cent higher since the start of the year.

"The infant formula and fresh milk company's shares have been on fire since the release of an impressive half year result in February," Motley Fool said.

The other over-performers were The Cleanaway Waste Management and Webjet.

A2 Milk's total revenue of $613.1 million – an increase of 41.0 per cent and that the company expected the group revenue growth rate in the second half continue broadly in line with the first half.

Early this month, a2 Milk said recent increases in dairy pricing will have an impact on gross margin percentages in the 2020 financial year but that it did not anticipate any significant impact in the current year to June 30.