The Motley Fool

Is Bubs the Best Growth Stock on the ASX?

Management at Bubs Australia Ltd (ASX: BUB) has barely put a foot wrong so far this year. The organic infant formula company has been targeting the lucrative Chinese market – and it looks like the strategy is starting to reap some tangible rewards. It might even see this unlikely young company beat off more established rivals like Bellamy’s Australia Ltd (ASX: BAL) and A2 Milk Company Ltd (ASX: A2M) to become the leading Australian provider of infant formula to the Chinese market.

The most recent piece of good news out of Bubs is the strategic partnership with leading Chinese baby products retailer Kidswant, which the company announced last Thursday. Bubs organic food products will now be stocked by 275 Kidswant stores in 123 cities throughout China, with sales worth $6 million expected within the first year.

The Kidswant contract is the first signing to come about as a result of the joint venture between Bubs and Chinese infant nutrition company Beingmate Baby & Child Food Co. The joint venture was only established in May, so the two companies have wasted no time courting new distributors for Bubs’ infant formula in China.

In addition to the Kidswant contract, Bubs has also started getting pretty chummy with Alibaba. At the same time as it signed the joint venture with Beingmate, Bubs entered into a formal strategic partnership with Alibaba to distribute its products through Tmall, the Chinese e-commerce giant’s online marketplace.

While Bubs’ focus is clearly on breaking into China, it hasn’t completely ignored the domestic Australian market. Bubs announced an equity-linked deal with Chemist Warehouse, which should align the business interests of the two companies.

Foolish takeaway

Bubs is still a growing company and a volatile investment for those with weak stomachs.  In just this last week alone Bubs had two trading days where its share price slid more than 5% and one where it skyrocketed over 30% (the day it announced the Kidswant agreement). But short-term volatility aside, the Bubs share price is up well over 100% so far in 2019 and it seems like it still has plenty of gas left in the tank.

The speed at which Bubs has established big-name partnerships and increased its presence in China is its most impressive accomplishment. Clearly, management has made the decision that pursuing Chinese market share is going to be its most profitable strategy in the long term, and it is going after it aggressively.

While Bubs is still a mid-cap company with plenty of risk attached to it, the successes it has notched up so far should go a long way to reassuring investors that the company is in safe hands.

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Motley Fool contributor Rhys Brock owns shares of BUBS AUST FPO. 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 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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