One of the best performers on the All Ordinaries index in April has been the Bubs Australia Ltd (ASX: BUB) share price.
Since the start of the month the goat milk infant formula company's shares have rallied an impressive 45%.
Why is the Bubs share price up 45% in April?
Investors have been scrambling to get hold of the company's shares after a couple of positive announcements.
The first was an 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.
That agreement is due to commence in June and will see Bubs products sold across Chemist Warehouse retail stores throughout Australia, including its domestic and Tmall online stores.
In addition to this, the company announced the completion of its Australia Deloraine Dairy acquisition.
Management believes this acquisition leaves Bubs 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.
Is Bubs the new A2 Milk Company?
Many investors appear to believe that these developments have positioned Bubs to be the next a2 Milk Company Ltd (ASX: A2M) or Bellamy's Australia Ltd (ASX: BAL).
And whilst I can understand why investors would think this due to its unique offering, wide distribution network, and massive opportunity in the China market, I don't believe it has yet proven that the demand is there to make it the new a2 Milk Company.
In the first half of FY 2019 the company posted gross revenue of $21 million. Despite this, I estimate that Bubs now has a market capitalisation of ~$600 million. I feel this is quite rich and makes it a risky time to buy shares.
In light of this, I plan to stay clear of Bubs until its sales are more befitting of a $600 million company or its valuation becomes more reasonable.
