It certainly has been a great three months for the Bubs Australia Ltd (ASX: BUB) share price.
Following yesterday's sizeable 14% gain, the organic baby food and infant formula company's shares have now gained a massive 150% in just the last three months.
Can they keep climbing higher?
I've been very impressed with the progress the company has made in the last three months in regards to the distribution of its products.
In Australia it has earned more shelf space with Wesfarmers Ltd (ASX: WES) owned supermarket chain Coles, signed a distribution deal with Metcash Limited (ASX: MTS), and also a supply agreement with leading pharmacy and healthcare distribution company HealthOne.
Over in China the developments have arguably been even more impressive. Agreements with e-commerce giant Kaola NetEase and distributor Brilite Nutritionals should put the company's products in front of a significant number of its target demographic in the lucrative market.
All in all, investors appear confident this will ultimately lead to a significant lift in sales in the future. Which is certainly something the company will need to do to justify its current share price.
For the 12 months to June 30 Bubs posted revenue of approximately $4.7 million, yet has a market capitalisation of $95 million based on its current share count and 35.5 cents share price.
By comparison, a2 Milk Company Ltd (Australia) (ASX: A2M) is expected to deliver sales of approximately A$511 million this year and has a market of $2.9 billion.
This means Bubs' and A2 Milk's shares are changing hands at approximately 20x and 6x sales, respectively.
Clearly the market has priced an incredible amount of future growth into the current Bubs share price and it will need to deliver on this and more to generate returns for its shareholders.
Whilst I expect the developments listed above will put it in a strong position to live up to the lofty expectations of the market, it is worth remembering that a failure to do so would be catastrophic for its shares.
For this reason I would suggest only investors with a high tolerance for risk consider an investment in this exciting company. And even then, restricting it to just a small part of your portfolio would probably be the best idea.
