Stock Valuation: Bellamy’s Australia Ltd (BAL)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
Consumer Defensive – Consumer Packaged Goods – Packaged Foods AUD10.96
@ 03 Sep 2018
COMPANY PROFILE Bellamy’s Australia Ltd is Tasmanian food brand business. The company offers a range of organic food and formula products for babies and toddlers.

Bellamy’s Australia Ltd supplies, sells, and distributes organic food and formula products for babies and toddlers. The company’s products are distributed in Australia, Vietnam, Singapore, Malaysia, People’s Republic of China, Hong Kong, and New Zealand, as well as via multiple online retail platforms. The company operates through three segments. The Australia segment, which generates the majority of group revenue, consists of sales to retailers within Australia. The China/Hong Kong segment derives revenue from sales to Chinese distributors and online sales from third-party websites to Chinese customers. The Other/Southeast Asia segment includes sales to other distributors and retailers, predominantly in Southeast Asia.

Stock Code BAL
Valuation Analysis Below

Bellamy's Australia Price to EBIT

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Price/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of AUD10.96 as at 03 Sep 2018, Bellamy’S Australia Ltd is trading at a Market Cap/EBIT Ratio of 19.2 times last 12 months earnings.  This is a 15.9% discount to its current fair P/EBIT Ratio of 22.8 times. (Price based on the historical average Market Cap/EBIT Ratio of the company is indicated by the red line.)
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from or Estimates are from – Thomson Reuters.
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