Go online and try and buy any Australian-made baby formula and you'll be lucky to find any products that are in stock.
It seems that not only are the manufacturers struggling to make enough of the stuff for normal consumption, but budding entrepreneurs are buying baby formula in bulk to sell to China.
When tins of formula costing between $20 and $30 in Australia can retail on Ebay for as much as several times that, you can see how quickly some people are making gains.
Bellamy's Australia Ltd (ASX: BAL) has seen its share price soar from listing at $1.00 in August 2014, to $9.29 currently, thanks to soaring demand for its products. That has translated into booming growth in revenues and earnings. How does 153% growth in revenues and 416% growth in earnings per share sound?
The company has also opened a flagship online store to access Chinese consumers directly through Alibaba's Tmall.com – the equivalent of Ebay.
OnCard International Limited (ASX: ONC), a tiny loyalty and rewards company with a market cap of $8 million has seen its share price double in just the past two days, after announcing the acquisition of The Van Diemen's Land Company – the largest single supplier of milk in Australia – for $250 million. Oncard had announced the appointment of Rob Woolley as a non-executive director and chairman in September. Mr Woolley is also the chairman of Bellamy's.
If there was any doubt about the soaring demand for baby formula, Oncard's dramatic share price change should lay that to rest.
Two weeks ago we also reported that vitamins and supplements manufacturer Blackmores Limited (ASX: BKL) had entered into an agreement with Tatura – a baby formula producer and subsidiary of Bega Cheese Ltd (ASX: BGA) – to manufacture a range of goods, including baby formula. Tatura also has an agreement with Bellamy's to produce its baby formula.
Blackmores' share price surged above $200 briefly on the news, but has now fallen back to around $164.
Blackmores' news also coincided with an announcement that China was going to lift its one-child policy, suggesting we are going to see even more children being born in China over the next few years, and even higher demand for high-quality Australian products such as baby formula.
Foolish takeaway
The share prices of Bellamy's and Blackmores could soar even higher from here. The problem for investors is that at the current prices, the fundamentals are being ignored and speculators buying today appear to be relying on someone down the track paying an even higher price than today's. That's a high-risk gamble and may or may not occur.
