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Aumake International Ltd shares storm higher on strong sales growth

The Aumake International Ltd (ASX: AU8) share price has had a strong start to the week following the release of its quarterly update.

At the time of writing the daigou company’s shares are up 12% to 46 cents, but were higher by as much as 15% at one stage.

What was in the update?

For the quarter ending December 31, AuMake made it six quarters of growth in a row when it delivered sales of $5.2 million.

Pleasingly, it also reported an impressive 90% increase in gross profit on the prior quarter to approximately $736,000 thanks to a solid lift in its gross margin from 10.1% to 14.2%.

This is expected to rise further in the coming quarters after lifting to 15.8% during the month of December.

Furthermore, management intends to expand its footprint significantly this year and open at least 20 stores by the end of 2018.

What is AuMake?

AuMake is a retailer specialising in the products that are sought after by daigou sellers which buy locally made produce and then sell it back to Chinese mainland customers for a profit.

Unlike your average Woolworths Group Ltd (ASX: WOW) supermarket, there is no limit to how much infant formula, for example, a customer can buy from AuMake’s stores online or in store.

This is great news for daigou wanting to get hold of A2 Milk Company Ltd (ASX: A2M), Bellamy’s Australia Ltd (ASX: BAL), and Blackmores Limited (ASX: BKL) products.

Should you invest?

I quite like AuMake and believe it has significant potential, just as long as these companies continue to supply to them.

Should supply stop from the most popular producers then I think the AuMake model could fail, but until then I suspect that its business will thrive. Especially with its rapid expansion across Australia and the backing of its hefty cash balance.

With a market capitalisation of approximately $84 million, its shares are changing hands at around 4x annualised sales. I don’t believe this is overly expensive given its current growth profile.

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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. 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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