All three of the stocks in today's article have experienced an incredible run over the past 12 months – but this is where it gets tricky.
Factoring in an extra price premium in return for future growth is basically a given when purchasing stocks, but the question of how much extra to pay can be quite difficult, especially when share prices may have leapt far ahead of the results at the companies they represent.
Here's what you need to know about the latest price rises at:
Bellamy's Australia Ltd (ASX: BAL) – last traded at $6.80, up 427% for the year
Bellamy's Australia continues to skyrocket, with shares up 427% this year after a 617% increase in profit over the past 12 months. It's certainly one of the better Initial Public Offerings (IPOs) of last year and the company appears well placed to continue growing after the recent re-signing of its contract with Tatura Milk and the potential for growth into China.
Its recent inclusion into the S&P/ASX 300 (INDEXASX: XKO) is likely to see increasing interest from investors as the company becomes more well-known and enters a number of managed and index funds.
I would not be surprised to see Bellamy's rise further in the next 12 months.
Integrated Research Ltd (ASX: IRI) – last traded at $2.38, up 145% for the year
Integrated Research has enjoyed a stunning year, with profit rising 58% on last year and elevating investor expectations right alongside this result. Management has attributed its success to becoming 'truly customer centric' which makes a strange kind of sense – if customers are responsible for most of your income, you want to be sure they're getting a good deal.
New licenses, a shift into cloud-based subscription services, and a falling Australian dollar all played a part, while recent strong interest in the company has been driven by its mention as a potential candidate for The Motley Fool's ace stock pickers.
In light of high interest in the stock and the anticipation of improved performance in 2016, I wouldn't be surprised to see Integrated Research head higher in the next 12 months.
Blackmores Limited (ASX: BKL) – last traded at $122.92, up 286% for the year
Blackmores Limited is already up four-fold from when I concluded it wasn't a stellar investment back in early 2013, and up almost nine-fold from when I decided the same thing at $14 back in early 2009.
So readers might want to take this opinion with a grain of salt, but it looks as though much of the easy gains have already been made. Shares are up 42% in the past month, and now trade on a Price to Earnings (P/E) valuation of more than 40.
The small number of shares on issue (17.2m) is compounding the problem by forcing interested investors to bid higher and higher to secure a dwindling number of available shares. The company's recent elevation into the S&P/ASX 200 (INDEXASX:XJO) is likely to see even more demand as index-tracking portfolios are forced to buy shares.
A misstep or signs of slowing growth on the company's behalf could spark a rapid re-rating in price as sellers compete with each other to get out from under. Additionally there are a variety of growth businesses trading on far cheaper multiples that are available to purchase.
