Why the Bubs share price is shooting higher today

The Bubs Australia Ltd (ASX:BUB) share price has been on fire on Thursday. Here's why it is shooting higher…

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One of the strongest performers on the All Ordinaries on Thursday has been the Bubs Australia Ltd (ASX: BUB) share price.

In morning trade the goats milk infant formula company's shares rose as much as 10.5% to 47.5 cents.

At the time of writing the Bubs share price has given back some of these gains but still sits 8% higher at 46.5 cents.

Why is the Bubs share price surging higher?

This morning Bubs released its second quarter update which revealed a strong increase in sales.

According to the release, during the quarter gross revenue was up 499% year-on-year and up 35% on the previous quarter to $12.1 million.

A key driver of this was a 216% increase in the sales of Bubs products compared to the prior correspond period and a 75% increase on the September quarter.

Management advised that the increase was thanks to its strong domestic presence, China cross-border eCommerce sales, and the activation of the Corporate Daigou distribution channel.

Of these products, its infant formula was the biggest seller with a 279% increase in sales compared to the prior corresponding period and a 107% lift on sales during the last quarter.

This meant that its infant formula offering accounted for 40% of group quarterly revenue.

Another key driver of this revenue growth was the CapriLac powder business which was acquired at the end of the prior corresponding period. Its sales grew 23% on previous quarter, which equates to 38% of group quarterly revenue.

However, despite its strong revenue growth the company posted a $4.95 million operating cash outflow. This ultimately reduced its cash balance down to $26.7 million.

Should you invest?

I thought this was an impressive quarter from Bubs and believe it is making a lot of progress.

However, I still have concerns over its lack of profitability. Despite sales growing significantly, its product and operating costs are still meaningfully higher than its cash receipts.

Until this changes I'm going to hold fire on an investment and focus on rivals A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL) instead.

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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