Why the Bellamy’s Australia Ltd share price keeps soaring

Credit: Bellamy's

Shares of Bellamy’s Australia Ltd (ASX: BAL), which produces a range of organic food and formula products for babies and toddlers, have had an incredible run so far in 2015 and the shares look set to finish the year on a perfect note.

Although the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen into reverse today, the share price of Bellamy’s Australia has continued its rapid ascent and even hit a new all-time high.

After briefly dipping to a low of $11.30 recently, Bellamy’s share price has rebounded strongly and surged another 4.5% to $13.60 today after maxing out at $13.79 earlier. At that high price, the shares have risen a total of 736% since the beginning of the year.

What’s behind Bellamy’s success?

Bellamy’s success mostly relates to the soaring levels of demand for infant formula around the world right now. Demand for the infant formula is particularly strong in China where residents remain hesitant to feed their children products produced in that country based on the number of health scares involving Chinese producers in recent years.

Bellamy’s is Australian-made and 100% certified organic, which the company itself recognises is an important differentiator between it and other rivals. In addition, most children seem to love the taste of Bellamy’s products, making them even more popular among parents around the world.

Indeed, demand for quality infant formula has been so strong recently that it often sells out within minutes of hitting the shelves in pharmacies and supermarkets. Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES) have even been forced to introduce limits to how many tins of the so-called “white gold” can be purchased per transaction.

What’s more, many of the tins purchased locally are actually then sold online to China, creating an even greater shortage of products. This extreme demand has led to enormous sales growth for Bellamy’s and should once again translate to strong earnings growth when it reports in February.

Notably, A2 MILK FPO NZ’s (ASX: A2M) infant formula products are also in red-hot demand, and its own shares have surged 15.2% higher today (after rising 33.8% during Friday’s session).

Should you buy?

It is clear that there is something of a boom for baby formula products right now which is causing the share prices of those companies that manufacture or produce them to soar. Bellamy’s in particular has enjoyed an incredible year and many investors will likely be wondering whether that trend can continue in 2016.

Firstly, it would be unreasonable to expect Bellamy’s share price to soar another 700% in 2016 – the early gains have most certainly already been realised. However, given the tailwinds for further growth in the industry, there could be further gains to be made nonetheless.

In saying that however, Bellamy’s shares are by no means cheap and investors should take a cautious approach to buying, if they choose to buy them at all.

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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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