What happened? Bellamy's Australia Ltd (ASX: BAL) shares have been on an absolute tear for the last 12 months, rising 456% in that time, 72% over the last 3 months and an incredible 32% in September's 10 trading days so far! The Tasmania-based group produces a highly popular baby formula product that's selling out in both Australia and Asia.
So What? Bellamy's is typical of a company that suffered from a lack of detailed investigation by the majority of investment analysts in Australia. The share price took off after the company upgraded full-year guidance in June when many competitors in the retail space were being cautious.
Bellamy's reported revenue growth of 156% and net profit growth of 617% for the year to June 30, which has been a driver of the recent strong performance. Management did warn that margins were impacted by increased supply costs, however with volumes increasing so strongly investors chose to put that to one side for now.
Now What? An interesting part of investor psychology is the ability to buy a company's shares after they've increased so strongly. Investors are constantly reminded of the wisdom of buying shares in companies with rising share prices; just look at the success of Domino's Pizza Enterprises Ltd. (ASX: DMP), CSL Limited (ASX: CSL), and Integrated Research Limited (ASX: IRI).
Bellamy's share price may be 456% higher than one year ago, but what if it's another 500% higher in 12 months' time. Of course we don't know what will happen, and the company is trading on an eye-watering price to earnings ratio of 78, but my gut says that you'd have more success investing in a company like Bellamy than you would a 'bargain' company like Metcash Limited (ASX: MTS) or Lynas Corporation Limited (ASX: LYC)
