The market may be pushing higher again on Wednesday but the same cannot be said for the Bellamy's Australia Ltd (ASX: BAL) share price.
In morning trade the infant formula and baby food company's shares fell as much as 3% to $10.93.
Why is the Bellamy's share price in the red today?
With no news out of the company, today's decline appears to be related to a broker note out of Morgan Stanley this morning.
According to the note, the broker has downgraded Bellamy's shares from an overweight rating to an equal-weight rating. Its analysts have held firm with their $10.00 price target.
Morgan Stanley made the move after Bellamy's share price rallied strongly in 2019 and well beyond its price target.
The broker believes the outlook for the company has improved this year, but perhaps not as much as its current valuation implies.
Its analysts are now going to be watching out to see how the company's new formulation fares in FY 2020.
Should you buy the dip?
Morgan Stanley expects Bellamy's to achieve earnings per share of 33 cents in FY 2019 and then 45 cents in FY 2020, pricing its shares at 33x FY 2019 earnings and 24x FY 2020 earnings.
I think this makes its shares about fair value if the company is able to gain its SAMR accreditation in the near future. This accreditation will allow Bellamy's to compete with A2 Milk Company Ltd (ASX: A2M) directly in China rather than just through the daigou channel.
I expect Bellamy's to do well in China, especially given its investment in marketing in the country this year. Bellamy's has pulled in a number of influential opinion leaders to help grow its brand in China. This is expected to lead to strong demand for its products when they finally hit the shelves of mother and baby stores throughout the massive market.
