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Why the Bubs Australia Ltd share price rocketed higher again today

The Bubs Australia Ltd (ASX: BUB) share price rocketed almost 11% in early trade to 20.5 cents after the release of more positive news out of the infant formula and baby food company.

Since then it has given back some of its earlier gains and is higher by 6.5% to 19.7 cents at the time of writing.

Following recent news of an expanded presence in Coles supermarkets and a distribution deal with Sigma Pharmaceutical Limited (ASX: SIP), this morning the company announced that it has entered into a supply agreement with Costco Wholesale Corporation.

The deal will see Costco offer Bubs infant formula products in its wholesale catalogue nationally, as well as stocking it in Costco’s Auburn warehouse in Sydney. Opening orders have been delivered.

I think this is yet another great development for Bubs. Costco’s wholesale membership model is designed to assist small businesses in purchasing products for resale.

As a result, this deal gives the company direct access to shoppers buying for domestic and international consumers.

But is it a buy?

I must admit to being very impressed with the progress that Bubs has made recently. Management has increased its distribution channels significantly in a very short period of time and should be commended.

But I would still suggest investors hold fire on an investment at this stage. Everything may be falling into place distribution-wise, but only time will tell whether this ultimately translates into sales.

So for now I would keep Bubs on your watch list and consider an investment in a2 Milk Company Ltd (Australia) (ASX: A2M) instead.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.

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