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Top broker says Bellamy’s Australia Ltd shares are worth $14.40

It has been another positive day for the Bellamy’s Australia Ltd (ASX: BAL) share price.

In morning trade the organic infant formula and baby food company’s shares are up 3% to $11.75.

Why are its shares higher today?

With no news out of the company this morning, the catalyst for today’s gain appears to be a positive research note out of Citi.

According to the note, the broker has upgraded Bellamy’s all the way from a sell rating to a (high risk) buy rating.

Furthermore, Citi has increased its price target on Bellamy’s shares to $14.40 from just $7.90. This price target implies potential upside of over 22% from the current share price.

Citi appears to have been impressed with the Bellamy’s turnaround and sees little by way of negative news flow on the horizon to stop its strong run from continuing.

Should you invest?

Although Citi has had a change of heart, I’m still not yet convinced that Bellamy’s is anything better than a hold at the current share price.

Like Citi, I have been very impressed with the Bellamy’s turnaround and believe management should be commended.

However, at 39x estimated forward earnings, I would prefer to buy in at a lower price in order to get a more compelling risk/reward.

But admittedly, considering the premium that investors are willing to pay for infant formula companies such as Bubs Australia Ltd (ASX: BUB) and a2 Milk Company Ltd (Australia) (ASX: A2M), such an opportunity may not arise.

In the meantime, I think investors ought to consider one of these top growth shares instead of Bellamy's. Each has strong growth prospects and trade on reasonable valuations in my opinion.

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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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