Why Jatenergy Ltd (ASX:JAT) shares doubled in value today

One of the best performers on the Australian share market on Tuesday was the Jatenergy Ltd (ASX: JAT) share price.

The infant formula company’s shares were up as much as 100% at one stage before closing the day 81.5% higher at 6.9 cents.

Why did Jatenergy’s shares double in value today?

This afternoon Jatenergy released its quarterly update and revealed a significant increase in cash receipts.

According to the release, the company saw its cash receipts from sales increase from $320,000 in the June quarter to $10.7 million in the September quarter.

This was notably higher than the $8.7 million estimate that management had provided in August. Management has put this down to synergies between recent acquisitions starting to prove themselves.

Jatenergy did, however, report a net operating outflow for the quarter of $5.5 million. This was due to product manufacturing and operating costs of $15.4 million during the quarter compared to just $446,000 in the prior quarter.

The cash outflow is expected to rise to $16.8 million in the next quarter. Jatenergy finished the quarter with a cash balance of $1.6 million.

Should you buy Jatenergy shares?

As there is no mention of these cash flow figures being audited, I’m going to presume that they are unaudited. In light of this, I would suggest that investors take these sales figures with a pinch of salt.

Furthermore, with its cash balance at such low levels, I suspect a capital raising will be needed in the near future to fund its operations. This could act as a major drag on its share price if it is able to raise funds.

Overall, I think investors should continue to avoid Jatenergy’s shares and focus on the shares of fellow infant formula companies A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) 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 Scott Phillips.

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