Bellamy's Australia Ltd surges 32% in September: What you need to know

You missed out on the first 500% rise but don't miss out on the rest!

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published September 14, 2015 8:38 am AEST

What happened? Bellamy's Australia Ltd (ASX: BAL) shares have been on an absolute tear for the last 12 months, rising 456% in that time, 72% over the last 3 months and an incredible 32% in September's 10 trading days so far! The Tasmania-based group produces a highly popular baby formula product that's selling out in both Australia and Asia.

So What? Bellamy's is typical of a company that suffered from a lack of detailed investigation by the majority of investment analysts in Australia. The share price took off after the company upgraded full-year guidance in June when many competitors in the retail space were being cautious.

Bellamy's reported revenue growth of 156% and net profit growth of 617% for the year to June 30, which has been a driver of the recent strong performance. Management did warn that margins were impacted by increased supply costs, however with volumes increasing so strongly investors chose to put that to one side for now.

Now What? An interesting part of investor psychology is the ability to buy a company's shares after they've increased so strongly. Investors are constantly reminded of the wisdom of buying shares in companies with rising share prices; just look at the success of Domino's Pizza Enterprises Ltd. (ASX: DMP), CSL Limited (ASX: CSL), and Integrated Research Limited (ASX: IRI).

Bellamy's share price may be 456% higher than one year ago, but what if it's another 500% higher in 12 months' time. Of course we don't know what will happen, and the company is trading on an eye-watering price to earnings ratio of 78, but my gut says that you'd have more success investing in a company like Bellamy than you would a 'bargain' company like Metcash Limited (ASX: MTS) or Lynas Corporation Limited (ASX: LYC)

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