Will the Bellamy’s Australia Ltd share price climb further in 2016?

Credit: Bellamy's

The Bellamy’s Australia Ltd (ASX: BAL) share price is on the rise again today, jumping 47 cents or 3.7% to $13.07.

That’s just 18 cents below its all-time high of $13.25, achieved earlier this month, while the shares have risen an astonishing 1,207% since listing on the ASX at $1 per share in August 2014.

Source: Google Finance

Source: Google Finance

Today’s lift in share price has likely come as a result of the stunning gains being recorded by Bellamy’s rival, A2 MILK FPO NZ (ASX: A2M) (“a2 Milk Company”). The company’s share price has risen more than 30% to $1.35 (they hit a high of $1.43 earlier) after it significantly upgraded its earnings guidance for the 2016 financial year. You can read more about that update, here.

While investors often think of a rival’s success as bad news, that’s not necessarily the case for Bellamy’s. In fact, the update from the a2 Milk Company today could actually bode very well for Bellamy’s.

Indeed, there is a boom for infant formula right now, and that is what has allowed A2 Milk to continually upgrade its guidance.

Reports from various media outlets have highlighted just how difficult it has become for Australian parents to get their hands on popular infant formula brands at supermarkets and pharmacies. In fact, many of the products purchased locally are actually being sold online – mostly to China where demand for infant formula produced in either Australia and New Zealand is red hot.

Bellamy’s own share price has skyrocketed over the last 16 months or so based on the same premise and another strong earnings update is expected when it reports in February.

Should you buy?

As we approach the end of the 2015 calendar year, one question on most investors’ minds likely relates to whether or not Bellamy’s and the a2 Milk Company can produce such stellar results in 2016 as well.

Given how much shares of both companies have climbed, it’s clear that the early gains have already been made – and it’s difficult to imagine Bellamy’s share price climbing another 1,200% over the next 16 months! In saying that however, there is potential for more gains if both companies can continue to post incredible sales and earnings growth to better justify the valuation metrics at which their shares trade.

Shares of both companies could continue to rise, but investors should do their own due diligence before buying.

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Motley Fool contributor Ryan Newman owns shares of Bellamy's Australia. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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