The Wattle Health Australia Ltd (ASX: WHA) share price has been amongst the best performers on the ASX on Tuesday.
Its shares are up almost 9% to 99.5 cents in late morning trade after the release of a positive announcement.
What was announced?
This morning the infant formula-focused health and wellness products company announced that its Blend and Pack business has successfully renewed its Certification and Accreditation Administration of the Peoples Republic of China (CNCA) for the manufacture of infant formula.
Blend and Pack is the largest independent, nutritional dairy manufacturer in Australia based on volume and one of only 15 CNCA accredited manufacturers of infant formula for the world’s largest nutritional dairy market, the People’s Republic of China.
Wattle Health is one of Blend and Pack’s nominated brands for the State Administration of Market Regulation (SAMR) accreditation which is required to sell infant formula product in China.
As a result, this renewal has given the Wattle Health board the confidence to move forward with its China plans.
However, I wouldn’t get overly excited just yet. While Wattle Health complied with all requirements to obtain SAMR accreditation and remains confident of obtaining the necessary accreditations, it could be some time before it is granted.
Bellamy’s Australia Ltd (ASX: BAL) has been waiting for its accreditation for over a year now and is expected to have a flat FY 2019 because of the unexpected delays.
Quite the contrast to industry rival A2 Milk Company Ltd (ASX: A2M) which locked up its accreditation long before new regulations came into place.
During the first four months of FY 2019 a2 Milk Company’s net profit has jumped 64.5% to NZ$86 million thanks largely to the insatiable demand for its products on the China mainland.
Should you buy Wattle Health’s shares?
Whilst this is a promising development, there’s still a long road ahead for the company and no guarantee that it will follow in the footsteps of a2 Milk Company or Bellamy’s even if its products go on sale in China.
Because of this, I would suggest investors stick with its two rivals and hold off an investment until it is generating meaningful sales that justify its current valuation.
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.