Bubs Australia Ltd shares storm higher on distribution agreement news

One of the better performers on the local market today has been the Bubs Australia Ltd (ASX: BUB) share price.

In afternoon trade the goat milk infant formula and baby food company’s shares are up 4.5% to 83 cents.

Why are Bubs’ shares storming higher?

The market has responded positively to an announcement out of Bubs this afternoon regarding a new distribution agreement in the China market with QianJiaWanPu Co. Ltd.

According to the release, QianJiaWanPu is China’s largest and fastest growing distributor of infant nutrition products, supplying 80,000 mother and baby stores throughout China. This equates to approximately 90% of all mother and baby stores in China.

Bubs will initially export selected organic baby food pouches, cereals and snacks which have already received the necessary accreditation. The opening order is worth $1.1 million and will be supplied in instalments between June and December of this year.

In time the agreement is expected to extend to cover Bubs’ goat milk infant formula products once they are approved by Chinese regulators.

Dongming Zhou, founder and chairman of QianJiaWanPu, believes that Bubs’ infant formula products could go down well with its customers.

He stated that: “I’m confident my retail customers and Chinese mothers will find Bubs’ Australian brand story and premium quality attributes a winning combination. No other infant formula brand in the world uses Australian goat milk, so this point of differentiation will be highly sought after.”

Should you invest?

I think this is another big positive for the company and positions it perfectly to hit the China market running when its infant formula products have the necessary accreditation.

However, only time will tell whether there is a market for a goat milk offering. I’m optimistic that there is and that it could compete with A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) in China.

However, with so much future growth already built into its share price, I feel it would be prudent to wait until its distribution agreements start generating sales growth that backs up its lofty market capitalisation.

Until then, are you looking for the next Bubs? Then don't miss out on these up and comers.

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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 Scott Phillips.

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