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Why Jatenergy Ltd (ASX:JAT) shares rocketed higher today

The Jatenergy Ltd (ASX: JAT) share price has been a big mover on Wednesday, climbing as much as 20% at one stage.

The energy and infant formula company’s shares have since given back some of these gains but are up 13% to 7.1 cents at the time of writing.

Why did Jatenergy Ltd’s shares rocket higher today?

This afternoon the company released a market update following the recent completion of its acquisition of 50% of Green Forest International.

According to the release, as the terms of the acquisition provided Jatenergy with board control, the company has now consolidated 100% of Green Forest’s accounts from August 11.

In light of this, the directors have provided an estimate for Jatenergy’s consolidated revenue and earnings for the June and September 2018 quarters.

In the June quarter sales are expected to be $577,000 with a net loss of $651,000 and in the September quarter sales are expected to rise to $8.7 million with a net loss of approximately $238,000.

Management advised its September quarter estimate is based on projections for sales of $16.1 million during the quarter, adjusted to reflect the acquisition completing on August 10. After which it expects sales to be equal or greater in the December quarter.

Should you invest?

While this would be a surprisingly impressive jump in sales if its estimates are accurate, management hasn’t explained where these sales are coming from. This has left me feeling a touch sceptical.

In addition to this, it is a bit of a concern that even on $8.7 million of sales the company is unable to make a profit.

Because of this, I would suggest investors stay clear of Jatenergy and fellow small cap infant formula companies such as Bubs Australia Ltd (ASX: BUB) and Wattle Health Australia Ltd (ASX: WHA) for the time being.

Instead, I would consider snapping up A2 Milk Company Ltd (ASX: A2M) after a recent pullback in its share price.

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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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