Infant formula companies A2 Milk Company Ltd (ASX: A2M), Bubs Australia Ltd (ASX: BUB), and Wattle Health Australia Ltd (ASX: WHA) have started the week on a positive note and pushed higher this afternoon.
Unfortunately, the same cannot be said for the Bellamy’s Australia Ltd (ASX: BAL) share price.
In afternoon trade the infant formula producer’s shares are amongst the worst performers on the index and down a sizeable 5.5% to $9.33.
This latest decline means that the Bellamy’s share price has lost almost 19% of its value since the start of the month.
Why is the Bellamy’s share price sinking lower again?
There appears to be a number of drivers for the share price weakness that Bellamy’s has experienced this month.
The first one is the strong gains it had made prior to April.
At the start of the month the Bellamy’s share price was up a massive 57% since the start of the year, which could have led to profit taking from some investors this month.
Investors had been snapping up the company’s shares in anticipation of it being granted the SAMR accreditation required to start selling its products on the China mainland. This is expected to result in a significant increase in sales and profits.
Unfortunately, this has still not been granted to Bellamy’s, despite management applying for the accreditation all the way back in December 2017.
The market may be concerned that the accreditation is not going to be granted in the near future and could be selling their shares now out of fear that the company’s performance in FY 2020 will be as disappointing as the current financial year.
Another possible explanation for the selling was a broker note out of Citi last week. It downgraded the company’s shares from a buy rating to neutral on valuation grounds after its stellar share price. It also voiced concerns over potential delays for its SAMR accreditation.
Should you invest?
I’m a big fan of Bellamy’s and think it could be a great long-term investment. However, I suspect its shares could remain quite volatile until its SAMR accreditation is (hopefully) granted.
The prudent thing to do would be to wait for it to be granted before making a move, but if you’re willing to be patient and plan to hold onto its shares for the long term, I would still be a buyer at current levels. You could even consider buying half of your planned position now and the other half once the accreditation has been granted.
Alternatively, you could invest the funds into this hot small cap stock which has been tipped for very big things.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Bellamy’s Australia and BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019