Is Bellamy’s Australia Ltd share price about to explode higher?

Credit: Bellamy's

When the market shut on Monday Bellamy’s Australia Ltd (ASX: BAL) shares closed the day up 2% at $13.75. Although this took its 30-day return to a huge 18%, it is still a long way off its 52-week high of $16.50.

But could its shares be about to explode higher? Well with its full year earnings due out next week I think there’s a strong chance that a solid result could be the catalyst.

According to Bloomberg analysts are expecting Bellamy’s to deliver earnings per share of 37.6 cents. Whilst this is a massive increase on last year’s 10.9 cents per share and some may think it’s unachievable, the organic infant formula producer is well on the way to delivering on expectations after an incredible interim result.

In the first half of the year Bellamy’s posted an impressive 83% jump in sales to $105.1 million. The bottom line performance was even better with net profit after tax rocketing 325% higher to $13.7 million.

I always love to see profit grow quicker than sales and Bellamy’s certainly has done this. The company achieved this feat by improving its gross margin from 32.1% to 41.6% thanks to exceptional growth in high margin online sales.

The cause of this is of course the insatiable demand coming from the China market. The good news is that as far as I’m concerned we’ve barely even scratched the service with this demand, with enormous growth potential ahead.

In a recent presentation Bellamy’s management explained how a 5% market share in China would be worth approximately $900 million in annual sales, based on 2014 research data. As a growing and trusted brand I would not be at all surprised to see the company command a market share of at least that size in the next few years.

This for me makes Bellamy’s a very attractive long-term investment. Whilst some may be put off by the fact in trades on a trailing price-to-earnings ratio of 126, if Bellamy’s delivers on analyst expectations its shares will be trading at just 34x earnings.

Considering its exceptional growth prospects I feel this is relatively cheap, especially when compared to other growth shares such as the excellent Aconex Ltd (ASX: ACX) and Domino’s Pizza Enterprises Ltd. (ASX: DMP) which trade on forward price-to-earnings ratios of 155 and 75, respectively.

Overall I think Bellamy’s represents one of the best growth investments on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) right now and is well worth adding to your portfolio.

Finally, before investing in Bellamy's I would highly recommend investors look to see if they own one of these three rotten ASX shares. Each could be harming your portfolio right now and may be best swapped out.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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