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The Bubs Australia Ltd share price is going nuts

It hasn’t just been the shares of A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) going gangbusters during earnings season, the shares of fledgling infant formula company Bubs Australia Ltd (ASX: BUB) have also been on a strong run.

In fact, thanks to a further 13% gain during afternoon trade on Monday, the Bubs share price has pushed a remarkable 40% higher since this time last week.

What happened?

Investors appear to be increasingly confident that Bubs has the potential to generate significant sales in the lucrative China market in the future after a2 Milk and Bellamy’s posted impressive sales growth in the country.

This is especially the case given that Bubs signed a supply agreement with Chinese e-commerce giant JD.com last week. JD.com is one of the biggest e-commerce platforms in the world with an estimated 266 million annual active users, predominantly based in China.

Not only does this deal grow its presence in the online retail market significantly, it also complements the numerous supply agreement the company signed last year. These include deals with the NetEase Kaola cross-border online sales platform, Woolworths Group Ltd (ASX: WOW), and Sigma Healthcare Ltd (ASX: SIG).

Should you invest?

Bubs certainly has a lot of potential in my opinion, but so far its sales have been a touch underwhelming.

Because of this, I intend to hold off an investment until its sales growth backs up its monstrous valuation. After all, there is always a danger that its goat milk infant formula offering won’t go down as well with Chinese consumers as first hoped.

Later this week Bubs will report its half-year results. While much of this is known due to its quarterly updates, I suspect the market will be hoping that management provides a trading update for the first six weeks of the second-half.

Until then, could these mid cap shares be even better than Bubs?

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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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