MENU

Down 52% in 6 months: Is the Bellamy’s Australia Ltd (ASX:BAL) share price a buy?

A lot of growth shares in the technology and consumer-facing sectors saw huge price falls over October including the likes of WiseTech Global Ltd (ASX: WTC), Treasury Wine Estates Ltd (ASX: TWE) and The A2 Milk Company Ltd (ASX: A2M).

One of the worst performers of all has been Tasmania-based infant formula retailer Bellamy’s Australia Ltd (ASX: BAL). Its shares are down from $16.80 to $8.04 today in just 6 months. So is Bellamy’s share price now a bargain or value trap?

Let’s take a look at a few arguments for and against.

For 

  • Bellamy’s has a very strong brand amongst its target market of parents who are prepared to pay premium prices to get ‘the best’ organic formula and baby food for this children
  • Total revenue is still on a strong upward trajectory, growing from $125 million in FY 2015 to $329 million in FY 2018. Also, adjusted EBITDA or operating income has grown strongly from $14 million in FY 2015 to $71 million in FY 2018
  • In FY 2019 the group is forecasting its Australian label sales will grow up to 10% and its adjusted EBITDA margin should grow marginally to 22%-25%. Rising sales and margins are commonly a ‘buy signal’ for professional investors.

However, Bellamy’s has a few risks as well.

Against

  • Bellamy’s sales growth forecasts for FY 2019 exclude Chinese label sales as the group is still waiting for regulatory approval in China to sell its Chinese label products in the “offline” channel that it says represented 6% of FY 2018 revenue. It has no idea on the potential timing of any approval. While the China market is attractive, it comes with a lot of uncertainty.
  • Bellamy’s has a mixed track record as a listed company with shares falling under $4 in January 2017 after the group was suspended from ASX trade for nearly a month as it frantically renegotiated supply agreements in an attempt to avoid insolvency.
  • Baby formula businesses have low barriers to entry in that it’s not hard to source and supply the powder for sale, with powerful multi-nationals like Danone and Nestle in the space. There’s no patent protection either for example, therefore investors are relying on Bellamy’s brand strength.

Foolish takeaway

Bellamy’s earned 39.2 cents per share in FY 2018, which places it on 21x trailing earnings. This is moderately expensive, but the shares are still trade at a big discount to prices over the past 6 months. If you buy into the China growth story and Bellamy’s success in Australia it could still offer investors strong long-term returns.

NEW! Top 3 Dividend Bets for 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk and WiseTech Global. 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!