The Bellamy's Australia Ltd (ASX: BAL) share price has rocketed 46% so far this year to outpace its larger and more well-known rival, A2 Milk Company Ltd (ASX: A2M), which has seen its share price gain a tidy 26% in 2019.
What's driving the Bellamy's share price higher?
The Bellamy's share price has been one of the top performers within the S&P/ASX200 Index (ASX: XJO) so far this year as the infant formula market has heated up, particularly with so much speculation surrounding Chinese regulatory approval for products.
Recent regulatory reforms have placed heightened scrutiny on imported infant formula products which require approval from the Chinese market regulator, the State Administration for Market Regulation (SAMR).
A2 Milk became the first Australian brand to be registered for sales approval in September 2017, while Bellamy's has been waiting for SAMR to give the green light for its products since 2017 – a factor which has hampered its share price growth relative to its bigger rival.
As more companies including Bubs Australia Ltd (ASX: BUB) and Wattle Health Australia Ltd (ASX: WHA) enter the market to try and seize a greater slice of the Chinese infant formula pie, investor speculation of SAMR approval has continued to grow.
Also fuelling the stock's meteoric share price so far this year has been a reduction in the level of short interest, with less than 10% of shares now being used to short the company as of early March. This has been another compounding factor for the Bellamy's share price as significant closing out of positions has driven the stock higher.
So are either Bellamy's or A2 Milk a Buy?
A2 Milk has been a real success story of the ASX in recent years as the A2M share price has soared a whopping 2,344% from $0.54 per share in April 2015 to its current valuation of $13.20 per share.
While A2 Milk has really benefitted from a strong first-mover advantage, with the likes of Bellamy's maturing its business via its distribution channels and product mix, I would be hesitant to jump into A2 Milk at its current valuation.
Bellamy's boasts a market cap of $1.25 billion but is yet to deliver on its potential – something which the pending SAMR approval could change in a heartbeat.
I personally think the baby formula market is overheated, and the regulatory risks arising from Chinese infant formula trade are too high, but maybe these top growth shares could contain the "next A2 Milk" of 2019.
