It's back to the future for Bellamy's Australia Ltd (ASX: BAL) investors this week as the stock roars higher on bets it's set to deliver strong sales growth on the back of surging Chinese demand.
Back in 2015 the same bets were being placed right before the Tasmania-based organic baby formula group blundered its way to multiple profit downgrades after its former chief executive and chairman sold millions of dollars worth of shares on market.
In FY 2016 Bellamy's amazingly quadrupled earnings to 39.8 cents per share as some of its then management team sold shares shares, only for the business to deliver negative 8 cents per share in earnings just 12 months later.
This morning its new management team revealed it has agreed to pay the regulator ASIC a huge $66,000 fine due to an "infringement notice" it incurred in relation to its continuous disclosure obligations in the period from 18 October 2016 to 2 December 2016.
At $9.68 a share the company's valuation is once again around $1 billion, with it targeting 5%-10% revenue growth over FY 2018. Given its track record, valuation, and fact that baby formula is just a commodity I'm giving Bellamy's shares a miss.
Another stock in the space making Bellamy's share price run look pathetic is the a2 Milk Company Ltd (Australia) (ASX: A2M).
At $7 a share it looks overvalued and in my opinion and could come crashing down in price on its next trading update currently scheduled for its November 27 AGM or beforehand.
