Bubs share price: Q3 activities report examined

'This quarter demonstrated the strength of our business model and agility of our team to continue to meet the needs of our Bubs Family.'

As optimism returns to the markets, investor sentiment has again turned positive on organic infant formula player Bubs (BUB).

Illustrating that point, heading into yesterday’s after-market Q3 release, the stock had been bid higher during each of the last five trading sessions.

Depending upon your view, this optimism may have indeed been well placed. In the third quarter the fast-growing IMF company booked record quarterly revenues of $19.7 million – representing a 36% uptick, on a quarter-over-quarter basis.

'This quarter demonstrated the strength of our business model and agility of our team to continue to meet the needs of our Bubs family in a challenging operating environment,’ said Bubs’ Chief Executive Officer, Kristy Carr.

All up, this brings the company’s year-to-date gross sales to $48.5 million. The company also delivered positive operating cashflow during the quarter of $2.3 million.

Bubs share price: a bullish atmosphere

In response to today’s quarterly figures, investors bid Bubs higher. In the first 30-minutes of trade on Wednesday, the Bubs share price ran to a high of $1.050 per share – equating to a gain of over 20%.

Though the stock has levelled off since then – currently trading at $XX – it now stands well off its 52-week low of 40 cents per share.

The Chinese growth engine

Even before the coronavirus pandemic, investor sentiment had turned sour on Bubs, with its share price falling ~20% from October 2019 to January 2020. Likely contributing to this, in the second quarter Bubs disappointingly reported that overall, its Chinese sales were down 32% on the prior corresponding period.

In the last month however, things have sharply turned around – with the Bubs share price more than doubling since 16 March.

Investors are likely to feel vindicated by the company’s latest quarterly performance in the all-important Chinese market.

Specifically, in Q3, Chinese region sales were up 104% over the prior corresponding period – making up a significant 24% of the company's gross sales for the quarter.

'While fully satisfying domestic demand, export revenue has also increased as we ship product by sea container to our strategic partners, including Alibaba for online sales into China through its Centralised International Procurement initiative, and the Beingmate Joint Venture,’ management said.

The company further noted that its supply chains remain intact, and that it has only experienced ‘minimal disruption’ to its manufacturing operations amid the current environment.

Looking at broader trends around Chinese consumption, according to a recent survey conducted by the BCG Henderson Institute:

‘Approximately half of Chinese consumers say they plan to spend more on preventative health care, vitamins and supplements, and organic foods over the next six months.’

This kind of research potentially explains the recent share price performances of infant formula players such as Bubs and its large-cap counterpart a2 Milk.

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