Bubs share price sinks 29% in a month. Top broker tips 60% upside

Bubs shares have fallen by around a quarter in just one month. But one expert is optimistic about the company’s future.

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Two babies laying down together drink milk made with Bubs infant formula in bottles as the Bubs share price rises again today

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Key points

  • The Bubs share price has fallen heavily in just one month
  • However, one broker thinks it has plenty of potential upside
  • The Citi share price target on Bubs is 59 cents

The Bubs Australia Ltd (ASX: BUB) share price has dropped by more than 29% over the last month.

It has declined much further than the S&P/ASX 200 Index (ASX: XJO), which has fallen by around 5%.

There has been a lot of volatility on the ASX share market. Inflation and interest rates are firmly in investor minds. But, Bubs has also recently released a quarterly update which may be factoring into investor thoughts.

Quarterly recap

On 26 April 2022, Bubs told investors how it had performed in the three months to 31 March 2022.

It said that gross revenue was up by 49% to $17.6 million. This was the third consecutive quarter of growth compared to the prior year. Bubs revealed that it’s seeing “positive growth momentum” across all of its key business pillars – domestic, China and international. Could this growth help the Bubs Australia share price?

Domestic retail infant formula sales more than doubled, up 108% on the previous corresponding period. It has reached a market share record, according to Bubs, with 4.2% of the overall infant formula category, and 40% scan sales growth. It claims to now be the number one goat infant formula brand with 42.1% of the total domestic goat segment.

While Chinese sales (daigou and cross-border e-commerce) were only up 8% year on year, while international gross revenue rose by 153%. International sales now account for approximately a third of sales in the last quarter.

The company continues to expand its bricks and mortar retail footprint in the United States, with 254 Smart & Final supermarkets in California and 130 Buy Buy Baby stores across 37 states. This is in addition to the ranging at Ralphs Supermarkets and an online presence on Amazon.com, Walmart.com, Thrive.com and others.

Bubs expects to deliver half-on-half revenue growth in the second half of FY22, partly thanks to the rollout of the new Bubs Supreme A2 beta-casein infant formula product range in the fourth quarter.

Lockdowns in China

One thing that investors may be keeping their eyes on is the lockdowns in China. The Chinese market is an important segment for the company – direct sales accounted for 40% of quarterly sales.

Lockdowns continue in China as authorities seek to stamp out COVID-19 there. Regarding that situation, Bubs said:

Due to renewed concerns regarding an increased number of COVID cases, authorities in China have implemented a range of measures including lockdowns. Bubs is working with its partners to ensure that consumers are able to access our products. Whilst there continue to be new challenges and issues to work through, the unique restructure of supply chain and logistics over the last two years have enabled the business to maintain and accelerate the growth momentum.

Is the Bubs share price an opportunity?

The broker Citi thinks so, with a price target of 59 cents. That implies a potential upside of around 60%.

However, Citi did acknowledge that the quarterly update wasn’t as good as expected and thinks the lockdowns in China may impact the current quarter. Citi suggests Bubs Australia will need to invest some money into launching its new products.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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