Shares of baby formula maker, Bellamy's Australia Ltd (ASX: BAL), bounded as much as 11% higher today on the back of a positive market announcement.
In an ASX market release Bellamy's said it is seeing stronger-than-expected sales of its formula in the local market and upgraded its second half profit forecast.
Reporting the group's interim results in February, Bellamy's said second half sales would be consistent with the first half when it generated a net profit after tax (NPAT) of $3.2 million. However, the new guidance showed a full year NPAT result of between $7.6 million and $8.3 million could be expected.
The new range implies half-over-half profit growth of between 37% and 59%. Bellamy's baby formula is in high demand both locally and abroad thanks to its popularity with consumers and the high quality of its ingredients. This is being reflected in exceptional growth both locally and abroad. For example, in the prior half year, domestic revenue was up 179% whereas export revenue was 30.1% higher year over year.
Its operational performance has however been reflected in a dramatic 182% share price run-up over the past year.
Should you buy Bellamy's shares?
Bellamy's shares may appear extremely expensive if you're using a backwards looking valuation metric such as a trailing price-earnings ratio (PER).
However, I estimate its shares trade at only 2.5x 2015's sales (which isn't expensive) and around 45x forecast earnings per share. For a high-quality company such as Bellamy's with a very long runway for organic growth both locally and abroad, I'd say that's a modest price to pay. There may be volatility in the near term, but if you're investing for the long term, Bellamy's shares are a rock-solid buy in this Fool's opinion.
