Why beer company Broo Ltd has rocketed 20% today

Is Broo Ltd (ASX:BEE) a must buy growth share or the most expensive share on the ASX?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The shares of Broo Ltd (ASX: BEE) certainly started the week with a bang. Following the announcement of a nationwide distribution deal in China the recently listed beer company rocketed 22% to 41 cents.

According to the release Jinxing Beer Group Co. has agreed to add Broo Premium Lager to its national product portfolio list. This makes Broo the only international label on offer through Jinxing's distribution network.

The deal is clearly a big win for the company and provides it with access to one of China's largest distribution networks. This gives Broo a great opportunity to grow its presence in the world's largest beer market.

Founder and CEO Kent Grogan appears to be extremely optimistic on the company's future in China. Mr Grogan said: "I am thrilled and humbled by this new development; it is literally a game changer and will dwarf our original sales expectations."

Whilst this deal could be the start of something big for the company, I wouldn't be in a rush to buy its shares. Including the circa 470 million shares that have been escrowed and are unable to be sold before July 2019, Broo has a staggering market cap of $250 million based on today's price.

That's incredibly expensive for a company that delivered sales of $516,334 in FY 2016, down 28.5% from $722,571 in FY 2015.

In fairness the deal in China could see sales go through the roof. But even so, I highly doubt they will be able to justify such a premium. I would much rather wait for some orders to come rolling in before even considering making an investment.

So for now I would suggest investors avoid Broo. Investors wanting exposure to the China market could consider an investment in Blackmores Limited (ASX: BKL), Bellamy's Australia Ltd (ASX: BAL), or a2 Milk Company Ltd (Australia) (ASX: A2M) instead.

Each has strong growth prospects and most importantly is available to buy at a reasonable price.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Bellamy's Australia. 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 Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »