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Bellamy’s Australia Ltd shares storm higher: Time to invest?

The Bellamy’s Australia Ltd (ASX: BAL) share price has continued its strong run and is up a further 4.5% to $11.50 in morning trade.

This means the organic food and formula products company’s shares have rallied as much as 150% in just the last six months.

Furthermore, its shares are now just 13% lower than their 52-week high of $13.22. Quite a turnaround for the embattled company.

Why are its shares higher?

While there was no news out of the company, today’s gain appears likely to be related to positive investor sentiment following last week’s trading update.

That update revealed that Bellamy’s has had a strong start to FY 2018, resulting in a full-year profit upgrade.

According to the release, management is now targeting FY 2018 revenue growth of between 15% and 20% for its core business. Previous guidance had been for revenue growth of between 5% and 10% year-on-year.

Further to this, management expects to finish the year with an EBITDA margin of between 17% and 20%. Bellamy’s had previously targeted a margin between 15% and 20%.

While this guidance excludes the forecast $1 million to $2 million EBITDA loss from the recently acquired Camperdown business, it still paints a far brighter picture than many had expected following its fall from grace.

Should you be buying shares?

While I do feel that Bellamy’s has done incredibly well to turn around its performance, I wouldn’t be a buyer at this price.

Nor would I be a buyer of fellow infant formula companies a2 Milk Company Ltd (Australia) (ASX: A2M) and Bubs Australia Ltd (ASX: BUB). Although I think each of them could have a bright future thanks to the insatiable demand for Australian infant formula in China, I feel their valuations are becoming stretched now and would suggest investors wait for a better entry point.

Instead of the infant formula companies, I think investors should consider these hot growth stocks.

Each of them has exceptionally strong growth prospects in my opinion, but trade at much fairer prices.

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