One of the most outstanding results of the recent earnings season in my opinion was Bellamy's Australia Ltd (ASX: BAL).
In FY 2016 the organic infant formula producer almost doubled its sales year on year from $125.3 million to a massive $244.6 million. This was fantastic, but its bottom line performance was even more impressive.
Thanks to price increases and positive changes in its channel mix Bellamy's was able to increase its earnings before interest and tax margin to 22.2% from 9.8% in FY 2015. This ultimately led to net profit after tax growing an astonishing 322% to $38.3 million. Basic earnings per share came in at 39.8 cents.
Despite this strong result its share price has barely budged since the announcement. Whilst this is no doubt frustrating for existing shareholders, I see it as a great opportunity for buy and hold investors who do not already own Bellamy's shares.
The current consensus price target on Bellamy's shares according to The Financial Times is $16, which represents potential upside of over 16% from Friday's closing price.
Considering the sheer size of the China market and the insatiable demand it is experiencing there, I believe Bellamy's strong earnings growth potential puts it in a great position to not only hit the price target, but go far beyond it over the next few years.
As I've mentioned previously, Bellamy's management has estimated that a 5% share of the China market would be worth approximately $900 million in annual sales. Thanks to its trusted brand and high quality product I believe Bellamy's is more than capable of gaining a market share of at least that size in time.
But like other companies such as Blackmores Limited (ASX: BKL) and a2 Milk Company Ltd (Australia) (ASX: A2M), regulatory changes in China will always be that one nagging concern for investors.
Although personally I don't believe there is anything to worry about, I feel it would be prudent for investors to keep a close eye on any developments in China that may hinder the company's growth.
But for now, I believe Bellamy's is a great long-term investment and would be a great addition to most portfolios today.
