Motley Fool Australia

Here’s why Bubs (ASX:BUB) and this ASX share are underperforming in 2020

Image source: Getty Images

The likes of Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO) may have just hit record highs, but not all shares are faring as well.

Two ASX shares that have thoroughly underperformed in 2020 are listed below. Here’s why their shares are down in the dumps:

Bravura Solutions Ltd (ASX: BVS)

The Bravura Solutions share price is down 37.5% since the start of 2020. The provider of software products and services to the wealth management and funds administration industries has come under pressure after providing underwhelming guidance for FY 2021. Bravura has warned that the pandemic could lead to flat profits this year.

While this guidance might not sound overly bad considering the disruption it has faced with COVID-19, investors appear concerned by just how much of this profit is expected to be generated in the second half. Bravura’s chief executive officer, Tony Klim, explained: “…second wave UK lockdowns and stalling Brexit negotiations have increased uncertainty and are slowing the progress of pipeline opportunities in the UK. As a result, Bravura expects FY21 NPAT to be weighted approximately 80% to the second half of FY21.”

One broker that thinks investors should look beyond this short term headwind and be taking advantage of the weakness in the Bravura share price is Goldman Sachs. It recently reiterated its buy rating and put a $4.50 price target on its shares. It believes the company is well-placed for long term growth once these headwinds ease.

Bubs Australia Ltd (ASX: BUB)

The Bubs share price is down a disappointing 37% since the start of the year and 48.7% from the 52-week high it reached in May. Investors have been selling the infant formula, baby food, and vitamins company’s shares after COVID-19 impacted its sales in the first quarter of FY 2021.

For the three months ended 30 September, Bubs reported gross revenue of $9.4 million. This was down 34% from the $14.21 million it achieved in the prior corresponding period. Management blamed the decline on a COVID-led contraction in the daigou channel.

But perhaps worst of all was its free cash flow. After becoming cashflow positive late in FY 2020, Bubs suddenly started burning through its cash again. For the quarter, it posted an operating cash outflow of $10.146 million, which was greater than its revenue for the period. This has sparked fears that yet another capital raising will be required next year, further diluting shareholders.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd and BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…

Latest posts by James Mickleboro (see all)