Bubs Australia Ltd shares rocket 12% higher on deal

One of the best performers in morning trade has been the Bubs Australia Ltd (ASX: BUB) share price.

At the time of writing the goat milk infant formula company’s shares are 12% higher to 73.5 cents.

Why are Bubs’ shares rocketing higher?

This morning Bubs announced that it has entered into an international supply agreement with Chinese online giant International Limited.

According to the release, the worldwide agreement will see the company’s entire range of infant formula, baby food, cereal products, and CapriLac goat milk powder available on the platform as early as the end of this month.

CEO Nicholas Simms believes that this is an exciting development for the company and sees the Chinese market as a lucrative market for Bubs to pursue.

Following the acquisition of NuLac Foods last year, which made the company Australia’s largest producer of goat dairy products, Mr Simms believes that Bubs is “uniquely placed to broaden its appeal to the Chinese market.”

What is

Although not a name that many Australians will have come across, is a retail behemoth in the making. As of 30 September 2017, had over 266 million annual active users and operated 7 fulfilment centres and 405 warehouses covering 2,830 counties and districts across China.

It already stocks the products of A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL), so Bubs won’t gain a competitive advantage over its rivals, but will increase its distribution footprint significantly.

Should you invest?

Whilst I have been impressed at the way Bubs has grown its distribution footprint over the last 12 months, this has still yet to impact its sales growth meaningfully.

In light of this, I continue to believe that investors ought to sit back and wait to see if sales grow at a level that justifies its lofty market capitalisation. After all, there is always a danger that Chinese consumers will not take to the product as expected, making announcements like these almost irrelevant.

In the meantime I would sooner buy a2 Milk, Bellamy's, or one of these top growth shares.

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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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