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Is Bubs Australia Ltd the next a2 Milk Company Ltd (Australia)?

Considering the recent plight of Bellamy’s Australia Ltd (ASX: BAL), investors could be forgiven for giving any up-and-coming infant formula companies a wide berth.

But that certainly wasn’t the case yesterday when the shares of Bubs Australia Ltd (ASX: BUB) listed on the ASX through a reverse takeover of Hillcrest Litigation Services.

With a listing price of 10 cents, investors scrambled to get hold of shares causing them to rocket higher by 35% on day one to finish the day at 13.5 cents.

Bubs is an award-winning specialist manufacturer of goats milk infant formula and organic baby food that is stocked by Wesfarmers Ltd (ASX: WES) through its Coles supermarkets.

Like a2 Milk Company Ltd (Australia) (ASX: A2M), Bubs also has a growing presence in the China market through online retail giant

Interestingly on its board of directors is Nancy Zhang, the wife of billionaire founder Richard Liu. I believe her involvement and in particular her knowledge of the Chinese retail market will be a valuable asset moving forward.

In FY 2016 the company delivered sales of $4.3 million, up from $2 million a year earlier. If it can find its footing in a crowded Chinese market then I believe there is a good chance of this strong growth continuing for some time to come.

But is Bubs a buy?

So far I like what I have seen with Bubs. I believe it has a quality product, a strong brand, a growing retail presence, and an influential and experienced board of directors.

But it is of course still early days and therefore comes with reasonably higher than normal investment risk.

For this reason I would suggest you restrict any investment in the company to just a small part of your portfolio at this point in time.

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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 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.

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