Why the Bellamy’s share price surged 9% higher today

The Bellamy’s Australia Ltd (ASX: BAL) share price has had a very positive start to the week.

In morning trade the baby food and infant formula company’s shares are up over 9% to $9.64.

This latest gain means that Bellamy’s shares have now rallied 18% since this time last week.

Why is the Bellamy’s share price surging higher?

Although Bellamy’s shares initially sank notably lower following the release of its half year results, it didn’t take long for them to recover and then push even higher.

Investors appear to have overlooked the bitterly disappointing financial result and focused more on its plans for the future.

As many readers will be aware, Bellamy’s has been waiting for the SAMR accreditation required to sell its products in mainland China since the end of 2017. This delay has been a major disappointment and means the company has been unable to benefit fully from the growing demand for infant formula in the country like rival A2 Milk Company Ltd (ASX: A2M).

Pleasingly, in its results last week management revealed that it has high confidence in a successful SAMR registration. It expects Australian SAMR audits to take place this year and is ready to activate its China Offline strategy the moment it is granted.

This strategy includes taking control of sub-distributor relationships and optimising network, taking control of key accounts, pricing and trade marketing, prioritising geographies, and the establishment of north, south, east and west sales units.

In addition to this, in March the company will launch its high impact campaign which will be supported by A-grade ambassadors and key opinion leaders. This includes Stefanie Sun, Zilin Zhang, and Niangao Mama who have a combined following of over 55 million on Chinese social media platforms.

Another potential catalyst for the share price rise was a broker note out of Citi last week which revealed that its analysts have a buy rating and $9.75 price target on Bellamy’s shares.

According to the note, the broker has pointed to Bellamy’s significant brand awareness in China as a reason to be positive on the future. It expects the China market to underpin strong sales growth once it receives its SAMR accreditation.

Should you invest?

I think that Bellamy’s would be a good long term investment even after its stellar share price rally over the last five trading sessions. I would suggest investors consider it ahead of its smaller rival Bubs Australia Ltd (ASX: BUB), which has also risen strongly today.

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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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