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Why the Bubs Australia share price jumped 14% to a new high today

One of the best performers on the All Ordinaries index on Tuesday was the Bubs Australia Ltd (ASX: BUB) share price.

The goat milk infant formula company’s shares jumped a massive 14% to reach a new high of 99 cents today.

When the Bubs share price hit this level it meant they had gained an impressive 115% since the start of the year.

Why is the Bubs share price rocketing higher?

Investors have been buying the company’s shares following the release of two positive announcements last week.

On Thursday Bubs announced the signing of a binding heads of agreement with the Chemist Warehouse Retail Group to form a four-year strategic alliance relating to the sale and promotion of its products in Chemist Warehouse stores.

The agreement is expected to commence on June 1 and will see Bubs products sold across Chemist Warehouse retail stores throughout Australia, including its domestic and Tmall online stores.

The latter is perhaps what has got investors most excited. The Chemist Warehouse Tmall store is the largest in the world by gross merchandise volume. In 2018 during ‘Singles day’ the store sold over RMB 180 million (A$38 million) worth of products in just 24 hours.

The second key announcement related to the completion of its Australia Deloraine Dairy acquisition and the $31.44million placement to C2 Capital Partners.

Management believes this acquisition leaves Bubs Australia well placed to advance its vision to be a leading player in the infant milk formula and infant nutritionals markets both at home and in China.

Should you invest?

I agree that Bubs Australia is exceptionally well placed now to challenge the likes of A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) in the massive China market.

The big question, though, is whether there will be sufficient demand for its products in the crowded market to justify its market capitalisation of ~$400 million.

Because of this, I’m going to watch on from the safety of the sidelines and see how its sales growth fares in FY 2020 before considering an investment.

Don't worry if you missed Bubs' strong share price gains, because this hot small cap stock has been tipped for big things.

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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. The Motley Fool Australia has recommended Bellamy's Australia and BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes 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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