Shares of Bellamy's Australia Ltd (ASX: BAL) have found themselves in unfamiliar territory recently.
After surging as much as 533% from their August 2014 debut to a high of $8.29 late last month, the shares have since come under selling pressure. They've dropped 15% since then, and 5.6% today alone, to trade at $7.05.
Who is Bellamy's Australia?
Bellamy's is an Australian company, based in Tasmania, which offers a range of organic food and formula products for babies and toddlers. As popular as the product has become, it's possible you've rarely even seen it in stores given that it sells so quickly.
Indeed, Bellamy's products are becoming increasingly popular in Australia and abroad. This is particularly the case in China, where consumers tend not to trust the quality or health standards of local producers.
Reflecting this demand, Bellamy's has grown at a phenomenal rate. Gross sales grew by 153% in the 2015 financial year to $131.7 million, while the group's net profit after tax, or NPAT, gained 617% to $9.1 million. The faster growth in earnings than sales was partially due to a reduction in distribution and selling costs as a percentage of revenue (12.1% in 2015 compared to 13.7% in 2014).
Should you buy?
Trading on a price-earnings ratio of nearly 72x last year's earnings, Bellamy's mightn't be a 'cheap' investment prospect. In saying that however, I believe Bellamy's can continue to grow at a strong pace over the coming years, which could make today's price tag look reasonable in retrospect.
Investors could look to take advantage of the recent pullback, and should certainly consider initiating a position in the company if the shares do continue to fall in the near-term.
