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Why the Bubs share price raced higher today

The Bubs Australia Ltd (ASX: BUB) share price is on course to finish the week on a positive note.

In afternoon trade the baby food and infant formula company’s shares are up 5.5% to $1.26.

Why is the Bubs share price racing higher?

With no news out of the company, I suspect that today’s gain could be attributable to a broker note out of Goldman Sachs this morning.

Although the broker’s focus was on industry peer A2 Milk Company Ltd (ASX: A2M), the research on Chinese ecommerce sales is likely to be applicable to both companies.

According to the note, Goldman’s research showed an “acceleration for most categories we monitored in Jun. In particular, we compiled data from Tmall channel, and noted that baby and health related demand (e.g. sportswear, sports shoes, overseas supplements, IMF, diaper and milk bottles) received a boost from the shopping festival.”

Infant formula was amongst the best performing items being sold across the platforms.

“Baby formula category recovered in Jun with 20% yoy growth. A2M continued to be the clear outperformer this month with more than 60% yoy growth while Nutrilon and MJN underperformed.”

Given that Bubs’ products are available on the Tmall platform, this may bode well for its June quarter sales that are due to be announced in the coming weeks.

Goldman doesn’t cover Bubs, so it doesn’t have a recommendation for it. But it does cover a2 Milk Company.

In fact, the broker recently added the company to its conviction buy list. Goldman Sachs has a price target of $17.40 on its shares, implying potential upside of 9.5% for its shares over the next 12 months.

According to the note, its analysts believe the company’s shares are attractively priced given its long term growth potential. It expects a2 Milk Company to grow its earnings by a CAGR of 25% between FY 2019 and FY 2021.

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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 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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