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Why this leading broker thinks BWX Ltd shares are a buy

The BWX Ltd (ASX: BWX) share price has been a strong performer in morning trade on Tuesday.

At the time of writing the personal care company’s shares are up 3% to a record high of $8.05.

What happened?

Today’s gain appears to be related to the release of a research note out of Goldman Sachs late yesterday afternoon.

In the note the broker addressed several key investor questions in order to justify its conviction buy rating and $9.10 price target.

Chief among them was its answer to concerns that its Sukin range may not be a highly sought-after brand in China due to the fact that it isn’t a premium product.

Goldman’s analysts aren’t overly concerned by this and believe that the USA, Canada, and UK markets are the company’s key markets. As consumer trends and distribution channels in these markets are similar to its core Australian market, the broker believes the company is well-positioned to grow in them.

It does, however, still expect the Chinese market to contribute sales, but it isn’t a material component of its investment case.

Another concern that Goldman addressed was the hyper-competitive nature of these markets. But its analysts feel that BWX does have competitive advantages over its peers.

These include its commitment to the natural/organic category, no conflicting legacy products, and its focused distribution channel. I agree with Goldman on this.

Although larger players have an eye on the rapidly growing natural/organic category, they struggle to compete on price with BWX due to their need to position these products at premium price points in order to avoid conflict with lower priced chemical ingredient-based products in their existing portfolio.

Should you invest?

While its shares are by no means cheap, I do believe it is more than capable of growing earnings at a strong rate to justify this premium. Especially if it does make in-roads into these key markets over the next few years.

In light of this, I would put it up there with A2 Milk Company Ltd (ASX: A2M) and Blackmores Limited (ASX: BKL) as one of the best consumer staple shares on the local market.

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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 and has recommended Blackmores Limited and BWX Limited. 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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