Unfortunately for its long-suffering shareholders, the Bubs Australia Ltd (ASX: BUB) share price has crashed 11% lower to a 52-week low of 37 cents on Tuesday.
This decline means the goats milk infant formula company’s shares have dropped 65% since peaking at 105.5 cents in February.
Sadly, this hasn’t proven to be the case thus far. In fact, rather than generating significant profits like its infant formula rivals, Bubs has been generating bigger and bigger losses.
In FY 2018 Bubs posted a normalised EBITDA loss of $6.4 million. And in the first quarter of FY 2019 it posted an $8.5 million net cash outflow from operating activities.
This left the company with a cash balance of $31.7 million, which is made up of $6.5 million cash in the bank and $25.2 million of call deposits. This is the leftovers of a $40 million share placement in June which was conducted at 75 cents per share.
No doubt if the company has to raise funds again, it will have to be done at significantly lower levels.
Should you buy the dip?
While I don’t think this is the end of the road for Bubs Australia just yet, it really will need to become cash flow positive in the near future to support its share price.
Any hints that the company may need to raise more money for working capital is likely to weigh heavily on its share price in the medium term. Especially at the current level where a capital raising is likely to be highly dilutive to existing shareholders.
Until then, I intend to keep it on my watchlist and focus more on the other quality shares in the industry that are making profits currently.
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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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