Shareholders in Bellamy's Australia Ltd (ASX: BAL) would be a pretty unhappy bunch. Shares of the organic food producer are trading around the $7.80 mark, which is under half of what they were valued at this time last year (but a lot better than the $7 level they hit just in time for Christmas).
Bellamy's has fallen over 55% over the last 12 months and 20% over the past month alone, so is it time to get back in to this fallen ASX star?
What does Bellamy's sell?
Bellamy's is a Tasmanian-based food producer which specialises in organic foods. They market a range of food items, including pasta, grain and fruit snacks and ready-made meals for babies and toddlers. What has really grabbed investor's attention over the past few years has been its infant-formula products.
As any investor with an interest in A2 Milk Company Ltd (ASX: A2M) would know, China has demonstrated an insatiable demand for quality infant formula and there is enough appreciation for 'Brand Australia' and Australian dairy in China for our products to command a premium – making the Chinese market a veritable gold mine for a2 Milk and Bellamy's. This is part of the reason why a2 Milk shares have hit the roof over the past few years (delivering a return of over 2,500% in four years).
However, Bellamy's hasn't been so lucky. The Bellamy's share price has delivered two massive growth periods. Investors who bought in at IPO in 2014 for about $1.40 and sold around Christmas 2015 would have banked about a 1,000% profit (that was right before the stock tanked). Similarly, if one had bought back in in March 2017 for around the $3.50 mark and ridden it all the way to the top of $22 (the reigning all-time high) … you get the idea.
What's caused the rollercoaster?
Although China seems like the promised land for Bellamy's, the dream has become a coma. All imports of foodstuffs in China need to be approved by the government through the State Administration for Market Regulation (SAMR). Bellamy's has failed to get SAMR approval for its products, specifically its infant formulas, and thus is not yet permitted to enter the Chinese market. The market seemed to have priced in a successful Chinese expansion and so this has been the driver behind the tanking stock price.
To add to these woes, the increasing trade 'dispute' between the US and China probably means that (in my opinion), China is not likely to give a US-friendly country like Australia any kind of export-boosting favours at this particular time.
It is likely that Bellamy's has become a falling knife in the short term and will probably be out of favour until there is a thaw in relations and Bellamy's gets the ok from the SAMR. I won't be holding my breath on this one.
