The ASX’s newest hot stock: Bellamy’s Australia Ltd

Should you buy Bellamy’s Australia Ltd (ASX:BAL)?

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Bellamys Organic Infant Formula

Up 37% in two trading days since listing on the ASX, Bellamy’s Australia Ltd (ASX: BAL) has gained 5% in early morning trade, after rising 30% yesterday on its ASX debut.

The Tasmanian-based infant formula and baby food producer raised $25 million through the issue of 25 million shares priced at $1.00 per share. Shares are currently changing hands for around $1.37.

Investors obviously think the company can generate fantastic growth. At the $1.00 share price, the P/E ratio was 19.0x, and the indicative dividend yield was a tiny 1.6%. The company sells more than 30 organic baby food products through the major supermarkets, Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES), pharmacies, online as well as independent supermarkets in Australia.

Bellamy’s also exports products into China, Hong Kong, Singapore, Malaysia, Vietnam and New Zealand. Plans to expand into the US and the UK in 2016 are also on the cards.

In a nice case of perfect timing, on the day of listing, Bellamy’s partner Tatura Milk Industries (TMI) received official Chinese certified organic accreditation as an overseas production enterprise for infant formula. Local Chinese producers were rocked by scandal a few years ago, when some infant milk formula was found to be contaminated, driving demand for imported formula.

Bellamy’s CEO Laura McBain has also told The Australian, “In China, demand for infant formula goes beyond the age of three, up to the age of 10.” Around 15% of product is exported, but the opportunities offshore appear large.

Revenues are expected to jump from $48.2 million in the 2014 financial year, to $83.8 million in 2015. Bellamy’s is forecasting net profit to more than double from $1.8 million to $5 million in 2015.

With virtually no debt and plenty of cash, Bellamy’s appears to be a nice little business and worthy of adding to your watchlist. The only problem is the price, which appears to be pricing in very strong growth for at least the next few years.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

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