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Should you take profit on your Bellamy’s Australia Ltd shares?

In morning trade the Bellamy’s Australia Ltd (ASX: BAL) share price has continued its solid run and is 1.5% higher at $12.57.

This means the infant formula and baby food company’s shares are up a remarkable 58% since this time last month.

Is now the time to take profit?

I think it could be. Whilst I have been very impressed with the Bellamy’s turnaround and believe management has done an excellent job, I do feel its shares are a touch expensive and could be prone to a profit-taking sell off once they lose momentum.

Which is precisely what happened to a2 Milk Company Ltd (Australia) (ASX: A2M) shares. The infant formula company’s shares are currently down almost 1% to $7.21, meaning they have shed almost 9% of their value in a little over a week.

Can they go higher?

It is worth pointing out that one leading broker still believes that Bellamy’s shares can climb higher from here.

A note out of Citi last month revealed that its analysts have upgraded Bellamy’s from a sell rating to a high risk buy with a $14.40 price target. That price target is still over 14% higher than where it trades today.

But based on Citi’s full-year forecasts, Bellamy’s shares would be trading at almost 48x forward earnings if they reached that price target.

That’s a little excessive in my opinion, especially as the company has yet to receive its CFDA approval that will allow it to sell its infant formula in China in 2018.

Foolish takeaway

Infant formula shares like Bellamy’s, a2 Milk, and Bubs Australia Ltd (ASX: BUB) are certainly on a high right now, but the sky-high earnings multiples they trade on make them quite risky.

I would suggest investors consider taking profit if they own them and hold off an investment until they fall back to more reasonable valuations if they don’t.

In the meantime I would sooner invest in these top growth shares instead.

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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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