The Bellamy’s share price is up 42% in March

The Bellamy’s Australia Ltd (ASX: BAL) share price is having another sensational day on the market.

In early afternoon trade the organic infant formula and baby food company’s shares are up almost 8% to $11.59.

This gain means the Bellamy’s share price has rocketed a massive 42% since the start of the month.

Why is the Bellamy’s share price surging higher again?

With no news out of the company, today’s gain is a bit of a mystery. But there are a number of potential catalysts that could be behind the move.

One is a reduction in the company’s short interest level. Short sellers have successfully targeted Bellamy’s over the last 12 months but appear to be moving onto new opportunities now.

ASIC’s latest short position report shows that Bellamy’s short interest had fallen to 9.3% as of March 8. That was down from 10.3% a day earlier and its lowest level since January. When short sellers close positions they need to buy shares to do so, which could explain the increased demand on the buy side.

Another potential catalyst could be speculation that the company is on the brink of receiving its SAMR accreditation which will allow the company to sell its Chinese-labelled products on mainland China.

Bellamy’s has been waiting for SAMR accreditation since the end of 2017, meaning it has been unable to benefit fully from the growing demand for infant formula in the country like rival A2 Milk Company Ltd (ASX: A2M).

The reason investors appear to believe that it could be granted soon is likely to be down to the company launching its high impact campaign in China this month. This campaign will be supported by A-grade ambassadors and key opinion leaders including Stefanie Sun, Zilin Zhang, and Niangao Mama. These three ambassadors have a combined following of over 55 million on Chinese social media platforms.

Should you invest?

Whilst I think Bellamy’s could be a good long-term option for patient investors, I would suggest you wait for a better entry point.

A note out of Citi late last month reveals that it expects the company to achieve earnings per share of 38.1 cents in FY 2020. This means that Bellamy’s shares are currently changing hands at 30x estimated FY 2020 earnings, which I think is looking a bit stretched.

As a comparison, Citi expects earnings per share of approximately 50 cents from a2 Milk Company in FY 2020, meaning its shares are priced at 26x estimated FY 2020 at present.

Based on this, I see more value in a2 Milk Company’s shares at this point in time.

Alternatively, these growth shares could be even better options for investors.

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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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