Here’s why the Bellamy’s Australia Ltd share price jumped today

Credit: Bellamy's

Shares of Bellamy’s Australia Ltd (ASX: BAL) have shot out of the gate this morning, rising 7.9% shortly after the market opened. They were trading at $12.90 but hit a high of $12.95 before that.

Source: Google Finance

Source: Google Finance

The sharp rise came after Bellamy’s’ rival, a2 Milk Company Ltd (Australia) (ASX: A2M), announced its half-year earnings results. Like Bellamy’s, a2 Milk sells a highly-popular infant formula product which has benefited from soaring global demand in recent times.

While a2 Milk’s sales and earnings both grew strongly compared to the prior corresponding period, it was the revised full-year earnings guidance that has likely gotten investors excited. The company increased its guidance several times late last year, and then raised its expected full-year EBITDA (earnings before interest, tax, depreciation and amortisation) by another 34% or so today.

Bellamy’s itself provided the market with a trading update earlier this month in an attempt to ease the selling pressure behind the shares. It noted unaudited half-year revenue of $105 million and earnings before interest and tax (EBIT) of $19 million.

Notably, those first-half figures compare to the $131.7 million in revenue and $12.3 million in EBIT that Bellamy’s achieved for the whole 2015 financial year, highlighting their growth potential.

The results from the a2 Milk Company today, together with the upgraded guidance, certainly bode well for Bellamy’s and its shareholders. Although the shares aren’t cheap – even at a 22% discount from their $16.50 all-time high in December – they could certainly be worth holding onto for the long run.

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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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