The S&P/ASX 200 (ASX: XJO) is pretty much back to where it started 2016.

It was a shaky start, for sure – the worst, in fact, in the history of the local share market.

Heck, we didn’t get our first gain of 2016 until January 13, while the main bourse had already dropped more than 8% within the first three weeks of the year.

It didn’t stop there, either…

The index continued to fall all the way through to February 10, where it bottomed out at 4,706 points.

It was the lowest level the share market had traded at since July 2013, and marked an 11.1% decline in less than six weeks

Back in Business

Thankfully for investors, conditions have improved a lot since then.

The ASX 200 was knocking on the door of the 5,200-point mark earlier in the week.

It’s retreated a little bit since then, partially due to a pullback in commodity prices and a dip in other share markets around the world…

It’s likely that investors are also somewhat cautious after the tragic terrorist attacks in Brussels earlier in the week that saw investors instead head for ‘safer’ assets, such as gold.

But even with those events, the benchmark index is now sitting less than 3% below where it started the year.

Even companies such as BHP Billiton Limited (ASX: BHP) and Santos Ltd  (ASX: STO), which both looked down and out just a few weeks ago, have made surprising recoveries.

But there are two companies that haven’t made the comeback some investors may have expected, or were hoping for, at least…

The Winning Formula

Every year, there seems to be one corner of the market which outperforms the expectations of every stock-picker and his dog.

Last year, it was gold – or rather, white gold.

Allow me to explain…

White gold was a name given to a product that was becoming increasingly sought after by consumers around the world.

Parents around the country were travelling for miles in search of this lucrative product – many without luck.

Heck, supermarket giants Woolworths Limited (ASX: WOW) and Coles, owned by Wesfarmers Ltd (ASX: WES), even had to enforce transaction limits per customer in order to control demand.

Below are just a couple of the headlines at the time…

  • Baby formula shortage: Government intervenes as Chinese demand strips Australian shelves of stock – The ABC; and
  • a2 Milking the Chinese formula gold mine – News.com.au

At the centre of this boom was Bellamy’s Australia Ltd (ASX: BAL), a recently-listed Tasmania-based producer of infant formula products – or ‘white gold’ as it is now often referred to as.

bellamys

Sales rose another 83% in the first-half of FY16 compared to the prior corresponding period.

Better yet, first-half earnings before interest and tax, or EBIT, had already exceeded the EBIT result for the entire FY15.

Believe it or not, Bellamy’s wasn’t the only company benefiting from the trend…

Shares of the a2 Milk Company Ltd (Australia) (ASX: A2M) exploded in the latter half of the year as well, while Blackmores Limited (ASX: BKL) was the top performing share from the ASX 200 cohort for the 2015 calendar year.

Now, Blackmores’ story was a little different…

Having only announced its entry into the infant formula market towards the end of the year, Blackmores has traditionally acted as a producer and supplier of vitamins.

Nonetheless, its products were also the recipient of huge demand, much of which came from China…

The result?

An incredible 519% gain in just 12 months…

But it’s been a completely different story so far in 2016 than it was last year.

Rather than continuing their rallies, it seems Bellamy’s and Blackmores’ shares have both fallen from a cliff!

Bellamy’s shares closed at $11.31 on Wednesday – 31.5% below their recent peak – and Blackmores closed at $176.48.

They hit a high of $220.90 late in 2015.

Is this growth story over?

Needless to say, it was always going to be difficult – if not impossible – for shares in either company to replicate last year’s gains.

Blackmores, for instance, was sporting a market value north of $3 billion at the beginning of the year. Another 519% gain would have made it larger than QBE Insurance Group Ltd (ASX: QBE) or Sydney Airport Holdings Ltd (ASX: SYD)!

But just because the early gains have already been made, doesn’t necessarily mean this growth story is over…

You see, China has an insatiable appetite for food and nutritional products, but it doesn’t want to take chances with poor quality goods.

After all, there have been a number of food-related health scares in the country in recent years, largely related to home-grown products.

In one particularly tragic incident back in 2008, six infants died and tens of thousands others were hospitalised with kidney problems after drinking a baby formula tainted with melamine, as reported by The Guardian at the time…

So, rather than take the risk, many would prefer to shop for goods from cleaner countries, including Australia.

And what’s more, they’re often prepared to pay a higher price for them.

Now, some of these products get to China via ‘grey markets’. That’s where someone buys the product in Australia, and then sells it on to Chinese residents via the internet, making a handsome profit in doing so.

Word has it that China will crackdown on these sales. It’s a risk facing both companies, and likely one of the reasons behind their falls so far this year…

However, both companies are busy ramping up their direct sales to the country to control this issue.

For an idea of the potential in this market, consider these stats reported by Bellamy’s…

  • Allied Market Research says the baby food market is estimated to reach US$72.7 billion (A$95.5 billion) by 2020;
  • The Sydney Morning Herald said in 2014 that the Chinese infant formula market is tipped to exceed AU$13.3 billion; and
  • Zenith International predicts the global infant formula market will exceed US$50 billion annually.

Considering Bellamy’s is on track to record total revenue of up to $260 million this year, it is clear there is plenty of room left for growth.

Of course, that’s not to say that shares in either company are cheap – certainly not by any conventional valuation standards.

But then again, considering the rate at which both companies are growing sales and earnings, you wouldn’t expect them to be, either.

For the sake of full disclosure, I sold a portion of my Bellamy’s shares late last year (as did The Motley Fool Australia, which also owns shares in the business).

To be clear, this wasn’t because of any doubts related to the quality of the business, but rather the fact it had simply become too large a portion of my own portfolio.

The fact is, buying shares in either company today isn’t going to double or triple your money in the near future.

But for long-term investors, both shares just might be worth another look…

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Motley Fool employee Ryan Newman owns shares in Bellamy's Australia Ltd. The Motley Fool Australia owns shares in Bellamy's Australia Ltd.