4 reasons the Bubs (ASX:BUB) share price has been crushed and just hit a 52-week low

The Bubs Australia Ltd (ASX:BUB) share price is down 58% from its high and hit a 52-week low on Monday. Here’s why…

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The Bubs Australia Ltd (ASX: BUB) share price is under pressure again on Monday.

In afternoon trade, the goats milk infant formula and baby food company’s shares are down 1% to a 52-week low of 50 cents.

This latest decline means the Bubs share price is now down 58% from its 52-week high.

Why is the Bubs share price at a 52-week low?

Investors have been selling Bubs shares in recent months due to a number of reasons. One of those is its underwhelming performance in FY 2021 and continued cash burn.

In respect to its FY 2021 performance, last month Bubs released its half year results and reported a 33% reduction in revenue to $18.3 million.

This was driven largely by weakness in infant formula sales due to issues in the daigou channel caused partly by COVID-19.

This weakness offset strong growth in Australian supermarket and pharmacy sales. Though, it is important to note that these sales are coming off a small base.

Unfortunately, things were even worse for its earnings, with Bubs reporting an operating loss of $14.4 million for the period. This compares to an operating loss of $5.25 million a year earlier.

This means that for every $1 of revenue Bubs is generating, it is actually losing 78.7 cents.

One positive is that the company ended the period with a strong cash balance of $40 million. This was thanks to the generosity of shareholders.

Capital raisings

The reason that Bubs finished in such a strong capital position was due to its $32.1 million capital raising at at 80 cents in September.

That capital raising, which which fell short of its $40 million target, was just the latest in a long run of raisings that Bubs has undertaken, diluting long term shareholders.

Clearly, without this capital raising, Bubs would have been in a precarious position.

Agreements going nowhere

Also weighing on the Bubs share price and investor sentiment are the countless announcements of agreements over the last few years which have seemingly gone nowhere.

One of those is a supply agreement with New Times Asia in 2018. Bubs stated that it “has entered a Supply Agreement with New Times Asia with a total sales commitment for purchase orders valued at $17M in FY19, and increasing to $24M in FY20, and $37M in FY21.”

It is unclear just how much this ultimately contributed to its sales. Furthermore, there has been no word on whether this deal will continue in FY 2022.

Bearish brokers

A fourth reason why the Bubs share price is at a 52-week low is the bearish view of one leading broker.

According to a note out of Citi last week, its analysts have held firm with their sell rating and 35 cents price target on Bubs’ shares. This price target implies potential downside of 30% for its shares over the next 12 months.

Citi is concerned over the sustained weakness in the daigou channel and the uncertainty regarding the company’s pathway to achieving profitability. This is particularly the case given the resurgence of domestic infant formula brands in the key China market.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO. The Motley Fool Australia has recommended 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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