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Why Wattle Health Australia Ltd shares jumped higher today

The Wattle Health Australia Ltd (ASX: WHA) share price has continued its solid run on Thursday.

At the time of writing the baby food and infant formula company’s shares are up 4% to $2.35. This means its shares have climbed 28% since the start of 2018.

Why are its shares higher today?

This morning Wattle Health followed up on Tuesday’s India sales order announcement, with news of another sales order.

According to the release, the company has received its first paid order from a distributor in the Macao Special Administrative Region of the People’s Republic of China for its entire dairy nutritional range.

This means that, amongst others, its infant formula and maternal nutritional milk powder products will soon be available for sale in Macau.

Whilst Macau only has a population of 650,000, it welcomes approximately 36 million tourists each year. The majority of these tourists come from mainland China, a market which Wattle Health has its eyes firmly fixed on.

In light of this, management sees the deal as a great way to expand its distribution footprint internationally and allow the company to service the lucrative cross border market with China through another distribution channel.

Should you invest?

As I have said many times before, I have been very impressed at the way the company has built its distribution network and positioned itself to take on the likes of A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) in China.

However, at this stage it is still very early days and its sales are small given its sizeable market capitalisation. In January, for example, Wattle Health achieved gross sales of $329,000 for the month. This equates to annualised sales of almost $4 million versus a market capitalisation of approximately $380 million.

While I have confidence that sales will ramp up greatly, especially when it achieves its CFDA accreditation, there is always a risk that the growth that has been built into its shares is overly ambitious. For this reason I’ll be sitting this one out for the time being.

In meantime I'll be looking at buying these top growth shares instead.

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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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