The Bubs Australia Ltd (ASX: BUB) share price was under pressure yet again on Monday.
The goat’s milk infant formula company’s shares tumbled a further 3.5% to a multi-year low of 42.5 cents.
This means the Bubs share price is now down over 64% from its 52-week high of $1.19.
Why is the Bubs share price at a multi-year low?
Investors have been heading to the exits in their droves this year amid concerns over its disappointing performance and its ongoing cash burn.
And with Bubs due to release its third quarter update later this week, it appears as though some investors aren’t sticking around to see that.
Bubs in FY 2021
As with rival a2 Milk Company (ASX: A2M), FY 2021 has been a very disappointing year for Bubs.
Despite all its many product launches, supply deals, and expansions, the company reported a 33% reduction in half year revenue to $18.3 million in February.
This was driven largely by weakness in the daigou channel due to COVID-19 travel restrictions. Though, there are also concerns that Chinese consumers now have a preference for domestic brands and are choosing them ahead of ANZ based options.
And while Bubs points out that it is the fastest growing infant formula manufacturer across the Australian grocery and pharmacy channel, this is from a very small base and comes at a time when the bigger manufacturers are being hit hardest by daigou weakness.
Also weighing on its performance and the Bubs share price was its inventory write off during the first half.
Bubs was forced to write off $3.1 million of inventory during the half. This is the equivalent of 17% of its revenue. And with the daigou channel still under pressure, investors appear concerned that further write offs will have to be made.
Though, as Citi suggested with a2 Milk last week, before that, Bubs may have to discount its product in order to offload it before expiry. This would hurt margins and potentially damage the brand.
Is the weakness in the Bubs share price a buying opportunity?
According to Citi, the Bubs share price could still go lower from here. Its analysts currently have a sell rating and 35 cents price target on its shares.
Based on the latest Bubs share price, this implies potential downside of 18% over the next 12 months.
Citi has concerns over demand and uncertainty relating to its pathway to becoming breakeven at long last.
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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 owns shares of and has recommended A2 Milk. 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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