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Here’s why the Bubs (ASX:BUB) share price crashed 40% lower in 2020

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The Bubs Australia Ltd (ASX: BUB) share price was a very disappointing performer in 2020.

Over the 12 months, the goat milk infant formula and baby food company’s shares lost a massive 40% of their value.

Why did the Bubs share price crash lower in 2020?

As with its larger and profitable rival A2 Milk Company Ltd (ASX: A2M), 2020 was a tale of two halves for Bubs.

At one stage the company’s shares were up 19% year to date to a 52-week high of $1.19. Investors had been buying its shares after it delivered a strong third quarter update for FY 2020.  

That update revealed record quarterly revenue of $19.7 million, which was up 67% on the prior corresponding period and a 36% lift on the second quarter.

But what was getting investors especially excited was news that it was finally generating positive operating cashflow. For the quarter, Bubs recorded positive operating cashflow of $2.3 million.

This was a massive positive and appeared to demonstrate that Bubs had finally reached a scale which meant its operations were profitable. This followed years of highly dilutive capital raisings and significant cash burn.

Cash burn returns.

However, this positive operating cash flow did not last long and Bubs was operating at a loss again in the fourth quarter. In fact, the company burned through $10.3 million of cash during the quarter.

And lo and behold, yet another capital raising was just around the corner. Bubs raised $28.3 million via a placement to new and existing institutional and sophisticated investors at 80 cents per share in September.

It then raised a further $3.8 million from retail shareholders via a share purchase plan. This fell well short of its $10 million target.

While this left it with a cash balance of $42.6 million at the end of the first quarter, these funds won’t last long if it doesn’t sort out its cash burn quickly. During the quarter Bubs recorded an operating cash outflow of $10.15 million.

And given how challenging trading conditions are in the daigou channel right now, an uptick in its performance is far from guaranteed.

Bubs’ second quarter update will be released in the coming weeks. Shareholders will no doubt be watching that one very closely.

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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 and has recommended A2 Milk 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.

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