Why the Bellamy’s Australia Ltd share price is rocketing higher

Credit: Steve Jurvetson

The Bellamy’s Australia Ltd (ASX: BAL) share price has climbed 9% today, despite there being no news from the company.

As the chart below highlights, the shares have climbed sharply over recent days and have managed to gain nearly 40% over the past month.

Source: Google Finance

The recent share price action would certainly have some investors scratching their heads since the infant formula company hasn’t released any sales updates or provided any further information regarding its inventory levels.

Despite this, a number of positive market and corporate developments could be helping to boost investor sentiment and forcing some short sellers to cover their positions.

For example, Bellamy’s major shareholders have been successful in getting a new management team and board of directors that they believe will get the company back on track. It appears investors agree and are growing more confident under the leadership of new CEO Andrew Cohen. Following two profit downgrades in quick succession, it became clear that the previous management team did not have a firm handle on the business or its outlook.

Another positive has been the appointment of renowned investor, John Ho, to the board. Mr Ho heads up Hong Kong based investment firm Janchor Partners and has extensive experience in investing in Australia and China. Janchor, along with Delta Partners, have also become major shareholders of Bellamy’s which has been seen by the market as a massive vote of confidence in the company.

Bellamy’s shares have also received a boost recently after news emerged that the Chinese government has delayed the implementation of some regulatory changes that would make it more difficult to export food products into China. While this is clearly a positive, it still remains unclear just how much of a short-term benefit this will provide companies like Bellamy’s and Blackmores Limited (ASX: BKL).

Finally, some investors might be feeling more confident about Bellamy’s prospects following the most recent impressive sales update from a2 Milk Company Ltd (Australia) (ASX: A2M). Based on this update, it is clear that Chinese demand for Australian baby formula is still strong and Bellamy’s could actually be moving more stock than the market expected.

Should you buy?

Although the worst appears to be over for Bellamy’s, I think it still might be a little too early to jump back in.

Instead, I would prefer to wait for some concrete evidence that the business has improved and that the company has been successful in moving the huge levels of inventory sitting on its balance sheet.

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Motley Fool contributor Christopher Georges owns shares of Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. 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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