Bubs Australia Ltd shares just reached another all-time high

One of the best performers on the market again today has been the Bubs Australia Ltd (ASX: BUB) share price.

In morning trade the fledgling baby food and infant formula company’s shares were up as much as 14% to an all-time high of $1.10.

Although they have given back some of these early gains, at the time of writing the Bubs share price is still 9% higher at $1.05.

Why are its shares higher?

While there has been a spot of positive news out of the company this month, I feel the main driver of this share price gain has been speculators betting on Bubs becoming the next a2 Milk Company Ltd (Australia) (ASX: A2M).

In fairness, Bubs’ management team has done a remarkable job with arranging supply agreements with key Chinese e-commerce platforms and mother and baby stores.

But it is important to note that at this stage these agreements have not led to a meaningful increase in sales revenue for the company. Sales may have increased by 109% in the first-quarter, but this was from a very low base.

And sales are unlikely to grow too drastically until the company has received its CFDA approval that allows it to sell into the China market from January 2018 onwards. Its application is expected to be lodged by the end of the current quarter, meaning it is unlikely to be ready for the January 1 deadline.

Once it does get approval then time will tell whether Chinese consumers take a liking to its products. If they do then it could end up living up to today’s lofty market valuation, but until then I plan to hold off an investment as I feel the risks at this stage far outweigh the potential rewards unfortunately.

For now, these top growth shares might be better options than Bubs if you ask me.

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Motley Fool contributor James Mickleboro has no position in any of the 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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