Is it too late to buy Bellamy’s Australia Ltd shares?

Although the Bellamy’s Australia Ltd (ASX: BAL) share price finished the day lower on Monday, at one stage it reached an all-time high of $18.75.

This brought its 12-month return to a staggering 352%.

Is it too late to buy Bellamy’s shares?

I think it could be. Whilst I’m a big fan of the company and have been very impressed with the way it has turned around its fortunes over the last 12 months, I think its shares are now fully valued.

As I mentioned last month, I wasn’t the only one that was impressed with its performance of late.

Two weeks ago Goldman Sachs slapped a buy rating and price target of $18.00 on Bellamy’s shares following the release of its full-year results. The broker made the move on the belief that the company’s gross margin expansion opportunities were underappreciated by the market.

Judging by the share price performance since that research note was released, the market now fully appreciates this opportunity.

So much so, Bellamy’s shares are now changing hands at approximately 45x Goldman’s earnings estimate for FY 2018 or 30x its FY 2019 estimate.

In light of this, I see limited upside for Bellamy’s shares over the next 12 months, which could make it worth locking in gains now if you’re a shareholder. If you’re not a shareholder, I would suggest you hold off and wait for a better entry points.

The same arguably applies for A2 Milk Company Ltd (ASX: A2M) shares as well. By my calculations they are changing hands at about 35x estimated FY 2019 earnings.

Foolish takeaway

Both Bellamy’s and a2 Milk Company are up there amongst my favourite growth shares on the local share market. But based on today’s prices and analysts’ earnings estimates, I think they are fully valued.

If both companies outperform expectations, as they often have, then they could yet justify a move even higher. But until then I intend to wait for a better entry point and focus on other opportunities.

In the meantime, these explosive growth shares trade on much more attractive prices right now.

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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 Scott Phillips.

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