The smaller end of the market can be a happy hunting ground for stocks that can show some serious upside, and Shaw and Partners thinks it's on to a winner with Bubs Australia Ltd (ASX: BUB).
Bubs recently reported its half-year results, and Shaw and Partners says there's a lot to like, and has assigned a price target to the company, which is 50% above where the shares are now.
More on that later – let's look at what the company reported.
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Solid underlying result
Looking at the underlying results, Bubs reported EBITDA of $4.4 million, up from just $0.5 million in the previous corresponding period.
On a net profit basis, the result was 50% lower than the previous corresponding period at $1.8 million.
Revenue came in at $55.5 million, up from $48.5 million, and the company maintained its full-year revenue guidance of $120 to $125 million, with EBITDA of $4 to $6 million, up from $1 to $2 million.
Bubs Chief Executive Officer Joe Coote said regarding the result:
We're pleased with the strong first half momentum and are on track to exceed our FY26 commitments. Our revenue and gross profit growth highlight the strength of our brands and the diversity of our business model, with the US our main growth engine as major retailers expand store counts and instore ranging. We have continued to invest in rightsizing our inventory in market to meet demand and respond quickly to market opportunities, particularly in the US and China, where momentum continues to build. Our Australia and Rest of World (ROW) markets are stabilising. Concurrently, we have strengthened our leadership capability with further key appointments and undertaken a rationalisation of our product portfolio.
Shares looking cheap
Shaw and Partners said there were some bright lights in the report.
The USA remains Bub's largest and most profitable market, driven by strong revenue growth, recording $34.2m in total group revenue, up 47.6% on the previous corresponding period. Momentum continues to build through category expansion in Goat infant formula, supported by ranging expansion across major retailers (e.g. Walmart, Target). Increasing store counts and broader instore distribution are driving sustained sales growth into the second half.
In China there was also strong underlying demand, while a drop in revenue in that market "reflected temporary in‑market inventory effects and short‑term supply shortages''.
Ageing stock has now been fully cleared, and in‑market inventory levels are healthy, positioning the business for normalised sales in the second half.
Shaw and Partners have run the ruler over the results and integrated the upgraded earnings guidance into their model, and subsequently upgraded their price target on Bubs shares from 17 cents to 18 cents.
This compares with a current price of 12 cents per share for the small-cap stock. Bubs is currently valued at $107.3 million.
