Month: May 2022

The future of ASX coal shares could be burning bright. This is despite their product falling out of favour with the majority of Australians.

While environmentally-conscious investors have shunned the polluting sector, at least one fund manager believes there is significant upside to some ASX coal miners.

The portfolio manager of the Atlantic Pacific Australian Equity Fund, Nicolas Bryon, is a big believer. He reckons the financial results to be reported by coal companies will be “bigger than Ben-Hur”, as reported by the Australian Financial Review.

ASX coal shares are on fire

ASX coal shares are already on fire over the past year. The share prices of Whitehaven Coal Ltd (ASX: WHC) and Yancoal Australia Ltd (ASX: YAN) have tripled in value over the period.

The New Hope Corporation Limited (ASX: NHC) share price isn’t far behind with a 160% advance. In contrast, the S&P/ASX 200 Index (ASX: XJO) is barely in the black over the last 12 months.

Overflowing coffers

It seems ASX coal shares have not finished outperforming either. Bryon believes the market remains slow to appreciate the fundamental upside that is yet to come. Some coal shares could even outpace their iron ore brethren.

Bryon commented to the AFR:

As we saw with the rally in iron ore over the past couple of years post-COVID-19, the extreme cashflow generation led to dramatically increased dividends and buyback potential of more than 10 per cent of equity.

In the case of thermal coal companies over the coming year, this increases by at least a factor of two. I have never seen anything like this in my entire career which spans 25 years.

Mega share buybacks and capital returns

What has gotten him so excited is his belief that the cash ASX coal miners will produce over the next few quarters will be so large that they could buy back all their shares on market – “and then some”.

ASX iron ore shares like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have won favour thanks to their outsized dividends and capital management programs.

They have funded their generous handouts through the high prices they are getting for their iron ore.

Top buy picks among ASX coal shares

Coal is also in hot demand, particularly since the outbreak of the Russian-Ukraine war. The large cap ASX coal miner that Bryon is backing is Whitehaven.

At the smaller end of the market, the fundie likes the Terracom Ltd (ASX: TER) share price.

However, there is such a thing as too much of a good thing. Bryon acknowledges that he is worried that extreme coal and energy prices could trigger a recession.

The post Why these ASX coal shares could be ‘bigger than Ben-Hur’: fundie appeared first on The Motley Fool Australia.

More reading

• Here’s why the Yancoal share price is crashing 15% lower today
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• Here are the top 10 ASX shares today
• Here are the 3 most traded ASX 200 shares on Friday

Motley Fool contributor Brendon Lau 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 no position in any of the stocks mentioned. 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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Experts have named some ASX dividend shares as opportunities.

A business isn’t necessarily a buy just because it pays a dividend. Brokers look for investments that look good in value and have a compelling future.

It’s important to keep in mind that brokers can be wrong about projections for a business, and that no one is perfect. In saying that, below are two potential ASX dividend share ideas.

Super Retail Group Ltd (ASX: SUL)

Super Retail is a retailing business that operates a number of brands including Supercheap Auto, Rebel and BCF.

One of the brokers that currently rates the business as a buy is Credit Suisse, with a price target of $14.40. That implies a possible upside of around 50% over the next year if the broker ends up being right.

Credit Suisse points to a recent trading update as a reason for its optimism.

The ASX dividend share noted that FY22 second half like for like sales for weeks 27 to 43 (compared to FY21) for Supercheap Auto were up 8.4%, for Rebel were down 1.8%, for BCF were up 7.6% and for Macpac were up 1.2%. For the group, like for like sales were up 4.4%.

Supercheap Auto and BCF delivered record Easter trading results, with both of them benefiting from strong consumer demand and high stock availability in categories.

Credit Suisse pointed to the company’s potential to keep growing its store network over the next few years.

The broker thinks that Super Retail is going to pay a grossed-up dividend yield of 10.75% in FY22 and 8.3% in FY23.

Inghams Group Ltd (ASX: ING)

Inghams is one of the largest poultry businesses in Australia.

Credit Suisse also rates Inghams as a buy, with a price target of $4.05. That implies a potential rise of more than 40%.

Inghams has provided commentary that means the second half of FY22 could be weak, according to the broker.

Indeed, in the ASX dividend share’s own words, it said that the second half has been “seriously impacted by the ongoing effects of the COVID-19 Omicron outbreak.” Costs remained elevated across the business, mainly driven by feed, supply chain and transport costs.

While employee attendance levels have improved, COVID-19 continues to affect operations and role vacancies remain elevated due to labour shortages.

However, the company has managed to achieve some price increases. The business is actively seeking price increases to offset the higher costs. Wholesale pricing has recently improved.

It also reported that there has been a product mix shift, which has had a detrimental effect on the profit margin.

That’s why Credit Suisse is expecting the Inghams grossed-up dividend yield to be 4.8% in FY22 and 9.6% in FY23.

The post Experts say these 2 ASX dividend shares are buys appeared first on The Motley Fool Australia.

More reading

• Why are ASX 200 retail shares climbing on Friday?
• Are these 3 ASX 200 shares trading around 52-week lows a buying opportunity?
• Guess which ASX 200 shares UBS just added to its ‘best ideas’ list
• These ASX All Ordinaries shares have the greatest margin risks from surging inflation: UBS
• Why are ASX 200 retail shares getting hammered on Thursday?

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 positions in and has recommended Super Retail Group Limited. The Motley Fool Australia has positions in and has recommended Super Retail Group Limited. 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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The Yancoal Australia Ltd (ASX: YAL) share price has started the week deep in the red.

At the time of writing, the coal miner’s shares are down 15% to $5.17.

Why is the Yancoal share price sinking?

Investors have been selling down the Yancoal share price on Monday following the release of a shock announcement.

According to the release, Yancoal’s majority shareholder, China’s state-owned Yankuang Energy, is considering a transaction to acquire enough Yancoal shares to force a takeover.

The release notes that the acquisition structure may be satisfied by the issuance of H-Share Convertible Bonds by Yankuang Energy and could result in the de-listing of Yancoal’s shares from the Australian share market.

In addition, management revealed that the potential transaction values the company well below where the Yancoal share price was trading on Friday. Yankuang Energy’s offer is the equivalent of $5.07 per share, which was 16.6% lower than its last close price.

This is despite Yancoal reporting bumper profits and free cash flow at present thanks to strong demand for coal.

Though, given its substantial holding, Yankuang Energy would only need a few other major shareholders to accept the deal to get it over the line. Much to the dismay of retail shareholders, some of which may have bought in at much higher prices.

What now?

The Yancoal board has appointed an independent board committee to evaluate the potential transaction and make a recommendation to independent shareholders.

In addition, the committee has appointed Gilbert + Tobin as its Australian legal adviser and Deloitte Corporate Finance as strategic and commercial adviser.

It also advised that there is no certainty that the potential transaction will proceed. As a result, the company has stated that Yancoal shareholders should not take any action in respect at this stage and are advised to exercise caution when dealing in Yancoal shares.

All in all, this looks likely to be a very volatile period for the Yancoal share price.

The post Here’s why the Yancoal share price is crashing 15% lower today appeared first on The Motley Fool Australia.

More reading

• Why are ASX coal shares sliding today?
• Why is the Yancoal share price on ice today?
• 3 ASX All Ordinaries shares smashing multi-year highs on Tuesday
• Why are ASX coal shares charging higher again today?
• Here are the best performing dividend shares in the ASX All Ords so far in 2022

Motley Fool contributor James Mickleboro 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 no position in any of the stocks mentioned. 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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The falling Zip Co Ltd (ASX: ZIP) share price has likely left many investors disappointed in its wake.

After riding the ‘buy now pay later (BNPL) wave’ alongside former market darling Afterpay, Zip shares hit an all-time high of $14.53 apiece in February 2021. But the stock has plummeted to multiyear lows in recent weeks.

At the time of writing, the Zip share price is 89 cents. That’s 80% lower than it was at the start of this year.

Its fall has likely left a sour taste in the mouths of many market participants, so what’s kept investors holding on?

Let’s look at what could be kindling shareholders’ hopes for the S&P/ASX 200 Index (ASX: XJO) BNPL giant.

Zip share price dragged down by bad debts

Zip chair Diane Smith-Gander has reportedly echoed the company’s co-founder and CEO Larry Diamond, saying concerns of bad debts have weighed on the Zip share price.

Smith-Gander admitted the BNPL industry missed economic cues that could have seen bad debts limited. But hope for the future is rife among the pair and is potentially keeping the market focused on the stock.

Smith-Gander told a conference that Zip will be working to “dig [its] way out” of the BNPL industry’s bad debt challenge, as reported by The Age.

She also noted that hopeful investors are “seeing through the cycle [and] looking to the future”.

Smith-Gander reportedly said:

In the industry there was a bit of a feeling that well these are small amounts of money, so the payback for recovery and collection activity is not the same as if you’re collecting mortgage that’s gone bad.

I refute all of that because I think we use technology and you are able to be much clearer about what your book is like.

Diamond outlined the company’s plan to move past the bad debt conundrum earlier this year. It has begun to limit risky debts by restricting credit available to first-time customers and that for existing customers.

“I wish all of you who have the intestinal fortitude to be involved in tech stock investing the very best of luck,” Smith-Gander was quoted by The Age as saying.

What’s keeping Zip fans holding on?

Despite the stock’s downturn – which Diamond previously called “violent and vicious” – there appears to be hope among Zip investors.

“[W]e are having some very tough times in the market,” Smith-Gander reportedly admitted.

But the BNPL giant is working to become cash flow positive across its range of businesses.

It’s already cash flow positive in Australia. The business is also growing in the United States following its rebranding of QuadPay.

It’s also successfully marked the credit industry with its own stamp, disrupting the credit card model to do so.  

Still, according to its most recent quarterly update, Zip’s credit losses were still worsening.

Thus, those holding onto Zip shares might demonstrate both “intestinal fortitude” and a notable degree of either hope or wishful thinking.

Or, they simply might not be ready to cut their losses yet.

The post ‘Intestinal fortitude’ or just wishful thinking? Why do some investors stick with Zip shares? appeared first on The Motley Fool Australia.

More reading

• ‘An easy one’: Expert reveals which ASX share he’d hold for 4 years
• Why is the Zip share price beating the ASX 200 today?
• The Zip share price is down 80% in 2022. Should you cut your losses?
• ‘Just horrific’: Why this fundie says Zip should abandon its Sezzle takeover
• The Zip share price is rocketing 6% today. Here’s why

Motley Fool contributor Brooke Cooper 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 no position in any of the stocks mentioned. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Apple (NASDAQ: AAPL) is one of the world’s best-known companies. But one of the characteristics it is least known for is its dividend payment. The company is relatively new to the dividend-paying list of stocks and is far from reaching Dividend King status. The tech giant resumed paying a dividend in 2012 after a 17-year pause.

Still, Apple could be an excellent dividend stock for investors who buy it today. Let’s look at its capacity to pay dividends and consider its valuation to determine its virtues as a dividend stock. 

Apple has delivered robust dividend growth 

Income investors can be encouraged by Apple’s acceleration of dividend payments. From 2012 to 2021, the company has increased its dividend per share from $0.10 to $0.85. That means shareholders saw their dividends grow more than eightfold in that time.

In that same period, earnings per share rose from $1.58 to $5.61. Earnings are crucial to sustaining a dividend payment. In that regard, Apple’s quality earnings growth is a good sign for the prospects of dividend increases. 

Its earnings are buoyed by continued innovation in its products, like the iPhone, Apple Watch, AirPods, and iPads. Supplementing that is a robust and expanding services segment that totaled 20% of revenue in its most recent quarter, which ended March 26. The rise of the services segment is crucial because it generated a gross profit margin of 72.6% vs. a gross profit margin of 36.4% for its products.

AAPL payout ratio data by YCharts.

While Apple’s current dividend yield is a modest 0.65%, there’s plenty of room for it to grow when you consider the company’s dividend payout ratio. This is the percentage of earnings paid out in dividends. Most recently, Apple’s dividend payout ratio was 14.5%, so the company could sustainably increase its dividend payment even if earnings remained constant, or sustain its current dividend even if profits decrease. The lower the percentage, the more wiggle room a company has in its dividend payment. 

Apple’s stock is not expensive 

Comparing Apple’s price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) ratios to their historic levels reveals that it is valued slightly above the average for those ratios over the past five years. In other words, in the last five years, there were times when Apple was pricier and times when it was cheaper. 

AAPL P/E ratio data by YCharts.

Another way to measure valuation is a comparison with a competitor. Using the same metrics, Apple sells at a discount vs. one of its rivals, Microsoft (NASDAQ: MSFT). Of course, it is not an apples-to-apples comparison (pardon the pun), but Microsoft is a big tech stock with a mix of hardware and software revenue. 

Accordingly, income investors who buy Apple stock today will probably thank themselves 10 years from now. To more directly answer the question in the headline, yes, Apple is an excellent dividend stock to buy. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Apple an Excellent Dividend Stock to Buy? appeared first on The Motley Fool Australia.

More reading

• Why Apple escaped Tuesday’s Nasdaq meltdown
• Why Apple stock jumped on Monday
• If you’d invested $1,000 in Apple in 2010, this is how much you would have today
• Why Apple stock slipped on Thursday
• Why Apple Stock is falling today

Parkev Tatevosian has positions in Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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After such a tricky start to 2022 for ASX tech shares, I think there are plenty of potential opportunities. May 2022 could be a good month for hunting in the tech sector.

I like a number of businesses in the sector. ASX tech shares often have the capability to achieve attractive profit margins because of the intangible nature of what they provide. It’s easier and cheaper to digitally send software to a new client than to make a new car or a table.

The concerns about inflation and interest rates have given the market jitters. But I think these lower prices now mean investors can buy some really good investments at much more attractive prices. So, here are two of my ASX tech share ideas as potential bargains.

VanEck Video Gaming and Esports ETF (ASX: ESPO)

This is an exchange-traded fund (ETF) that gives investors access to a group of global video gaming businesses.

Gaming readers may recognise some of the names in the portfolio including: Tencent, Nvidia, Activision Blizzard, Netease, Nintendo, Advanced Micro Devices, Electronic Arts, Nexon, Bandai Namco, and Ubisoft.

This ETF is invested in businesses that are seeing pleasing growth. VanEck said that video gaming revenue had risen by an average of 12% per annum since 2015. E-sports revenue grew by an average of 28% per annum since 2015.

VanEck points out that e-sports has created new potential revenue streams from game publisher fees, media rights, merchandise, ticket sales, and advertising. The competitive video gaming audience is expected to reach 646 million people worldwide in 2023, driven partly by an increasing number of people on the internet.

I think the ESPO ETF is attractive for its revenue growth and the fact that it has fallen by 20% since the start of the year.

ELMO Software Ltd (ASX: ELO)

ELMO provides human resources and payroll software for small and medium businesses in Australia and the UK.

The business is rapidly scaling as shown by its latest quarterly update for the three months to 31 March 2022. This showed revenue rising by 37% to $67.4 million. Annualised recurring revenue (ARR) rose 33% to $101.2 million.

While the ELMO Software share price has dropped by more than 30% in 2022 to date, I think it has demonstrated a couple of positives recently. The FY22 third quarter showed that the business had swung to profit at the earnings before interest, tax, depreciation and amortisation (EBITDA) level. EBITDA rose $3.2 million year on year to $2 million.

The company also confirmed that it’s expecting to cross the cash flow breakeven point in the second half of FY23. It also said that its ARR is expected to rise to between $107 million to $113 million by the end of FY22, representing growth of between 28% to 35% year on year.

The company continues to grow its client base and it’s adding more modules for clients to use. This makes customers more valuable to ELMO Software and makes the software more useful to clients.

The post I think these 2 ASX tech shares are buys in May appeared first on The Motley Fool Australia.

More reading

• 3 high quality ETFs for ASX investors to buy now
• Are investors missing out on these ASX share opportunities?
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• 3 fantastic ETFs for ASX investors to buy this week
• Are these 2 compelling ASX shares buys in May 2022?

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 positions in and has recommended Activision Blizzard, Advanced Micro Devices, and Elmo Software. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Electronic Arts and NetEase. The Motley Fool Australia has positions in and has recommended Elmo Software. The Motley Fool Australia has recommended Activision Blizzard and VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports ETF. 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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The Xero Limited (ASX: XRO) share price is zooming higher on Monday morning.

In early trade, the cloud accounting platform provider’s shares are up 2.5% to $89.78.

Why is the Xero share price rising?

The catalyst for the rise in the Xero share price on Monday has been a rebound in the tech sector.

This follows a very strong night of trade on the Nasdaq index on Friday after investors responded positively to data showing that US inflation is slowing.

It isn’t just Xero that is rising today. For example, the S&P ASX All Technology index is up a solid 2.6% at the time of writing.

Can its shares keep rising?

The good news for investors is that one leading broker believes the Xero share price can keep rising from here.

According to a recent note out of Goldman Sachs, its analysts have put a buy rating and $118.00 price target on the company’s shares.

Based on the current Xero share price, this implies potential upside of 31% for investors over the next 12 months.

What did the broker say?

Goldman believes that the company’s shares are trading at an attractive level currently. In fact, the broker highlights that its shares are changing hands on some of the lowest revenue multiples in years.

It explained: “Given peer de-rating on higher rates, we reduce our target multiple to 15.7X (from 17.5X), driving our 12m TP -11% to A$118. With +53% [now 31%] upside potential, we stay Buy, noting: (1) Our 15.7X target multiples compares to Jan-20 at 16X; and (2) Current trading multiple at 10.1X is its lowest level since Mar-18.”

And while these revenue multiples are still higher than average, Goldman believes this premium is deserved. Particularly given its belief that Xero potentially has a multi-decade runway of solid growth.

The post Xero share price charges higher: Can this tech share keep rising? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Here’s why I think these 2 ASX growth shares are top buys in May
• Analysts name 2 ASX 200 shares to buy after the selloff
• What’s happening with ASX 200 tech shares today?
• Here’s why ASX 200 tech shares are under pressure on Tuesday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. 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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Leading fund manager Wilson Asset Management (WAM) has revealed two ASX shares that it rates as buys within its WAM Research Limited (ASX: WAX) portfolio.

WAM operates a few different listed investment companies (LICs).

One of the LICs is called WAM Research, which looks at the smaller businesses on the ASX where there may be more hidden gems.

WAM describes WAM Research as an LIC that “invests in the most compelling undervalued growth opportunities in the Australian market”.

The WAM Research portfolio has delivered gross returns (that’s before fees, expenses, and taxes) of 15.1% per annum since its investment strategy changed in July 2010. This compares to the All Ordinaries Total Accumulation Index (ASX: XAOA) return of 9.4% per annum.

These are the two undervalued ASX shares that WAM outlined in its most recent monthly update for WAM Research.

GUD Holdings Limited (ASX: GUD)

WAM describes GUD Holdings as a business that owns a portfolio of companies in the automotive aftermarket and water products sectors. The main two countries where it operates are Australia and New Zealand.

The fund manager noted that in a recent trading update, the ASX share said that its revenue had “rebounded strongly” in March as the disruptions caused in January 2022 by the Omicron variant of COVID-19 slowed.

GUD Holdings pointed to the historically high levels of dealer sales backlogs, which are expected to support revenue growth over the short term. Sales of new vehicles are expected to return to pre-COVID levels in the medium-term.

The ASX share said that it expects inflationary pressures in freight, supply, and material costs. GUD reaffirmed its previous guidance for FY22 for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $155 million to $160 million.

WAM says that its outlook for GUD Holdings remains strong and the fund manager is confident that the company will deliver on its FY22 guidance.

Viva Energy Group Ltd (ASX: VEA)

The fund manager describes Viva Energy as one of Australia’s leading energy companies that supplies approximately 25% of the country’s liquid fuel requirements.

Viva Energy owns and operates the Geelong Refinery in Victoria and operates bulk fuels, aviation, bitumen, marine, chemicals, and lubricants businesses.

In April, Viva Energy gave the market an update for the quarter for the three months to 31 March 2022. This update showed a 9% increase in total group volumes over the prior comparative period, driven by “strong” diesel sales.

WAM also noted that aviation sales volumes also increased 3% year on year, with 16% growth compared to the three months to 31 December 2021. This growth occurred after improved domestic aviation demand from leisure travel.

The fund manager said that as oil demand recovers globally, it continues to see upside for Viva Energy and expects refining margins to grow and beat earnings expectations.

Other investments

These aren’t the only two names in the portfolio. At the end of April 2022, WAM Research also owned names like Lovisa Holdings Ltd (ASX: LOV), Treasury Wine Estates Ltd (ASX: TWE), and Brickworks Limited (ASX: BKW).

The post This top fund manager thinks these 2 ASX shares are buys appeared first on The Motley Fool Australia.

More reading

• 4 great value ASX shares we just bought: expert
• 2 compelling All Ordinaries ASX shares this fund manager likes
• 3 ASX All Ordinaries shares hitting multi-year highs on Monday
• 2 ASX 200 shares clocking multi-year highs on Thursday
• Could these 3 ASX dividend shares still beat the piggybank if rates hit 2.5%?

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 positions in and has recommended Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool Australia has recommended Lovisa Holdings Ltd and Treasury Wine Estates Limited. 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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The Bubs Australia Ltd (ASX: BUB) share price is rocketing higher on Monday morning.

At the the open, the infant formula company’s shares are up a whopping 77% to a 52-week high of 86 cents.

Why is the Bubs share price rocketing higher?

Investors have been bidding the Bubs share price higher today after the company announced a major deal with the United States.

According to the release, Bubs will ship more than 1.25 million tins of baby formula to help ease a nationwide shortage. This shortage has been caused by a major product recall and the closure of a plant operated by Abbott Nutrition in response to rare bacterial infections.

This looks set to be a major boost to Bubs’ financial performance, which has seen the company report significant cash burn for years. And with US President Joe Biden tweeting his thanks to Bubs, it arguably gives the company the biggest publicity it will ever receive.

I’ve got more good news: 27.5 million bottles of safe infant formula manufactured by Bubs Australia are coming to the United States.

We’re doing everything in our power to get more formula on shelves as soon as possible.

— President Biden (@POTUS) May 27, 2022

https://platform.twitter.com/widgets.js

What now?

The release notes that the shipment of 1.25 million tins is the equivalent of at least 27.5 million bottles and will comprise both cow’s milk and goat’s milk infant formula.

500,000 tins are ready for immediate export, with the remaining 750,000 tins now under production and planned to be completed in the coming months.

Bubs also revealed that it is well-placed to triple its current 10 million tin annual capacity at its FDA registered production facility if demand continues to build once the shortages end.

Importantly, in the meantime, the company has stressed that its supply to existing Australian retailers and export markets will remain unchanged despite its deal with the Biden Administration.

Management commentary

Bubs CEO, Kristy Carr, commented:

Bubs is uniquely positioned with an existing nationwide sales and distribution footprint, enabling us to stock shelves with existing and prospective retail partners quickly.

Bubs already has the necessary customer relationships and processes to support the initiative, including supply and distribution logistics, and the appropriate insurances and Aussie Bubs Advisory Board to assist American families. This foundation is a reflection of our long-term commitment to the USA as a strategic priority for the Company, drawing on our 17 years of experience in infant nutrition to ensure that stringent standards and quality control measures were in place to support the launch.

Bubs’ chairman, Dennis Lin, acknowledged that the company was fortunate to have entered the USA market during a period of shortages.

Bubs had identified USA as a strategic key market two years ago, and our commitment to invest has thankfully coincided with American families’ time of need. This allows us to accelerate our strategic vision as well as provide support that goes to the heart of the Bubs DNA.

Time will tell whether this is a short term boost to sales or the start of something special in the US market.

The post Bubs share price rockets 77% on US deal with Biden Administration appeared first on The Motley Fool Australia.

More reading

• Why is the Bubs share price toddling higher on Monday?
• Why did the Bubs share price jump 16% today?
• Which is the better beaten-up buy, Bubs or A2 Milk shares?
• Bubs share price sinks 29% in a month. Top broker tips 60% upside

Motley Fool contributor James Mickleboro 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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There are some attractive ASX share options in May 2022. However, one that is catching my attention is Airtasker Ltd (ASX: ART).

For readers who haven’t heard of the business, it provides a platform to bring together people who need work done and individuals or businesses willing to do that work.

There are dozens of categories that people can choose from, including home cleaning, removalists, furniture assembly, handyperson tasks, home and gardening, delivery, accounting, automotive services, swimming lessons, and wedding services. One of the categories that can be chosen is ‘anything’.

I think there is a lot to like about this business. But there are a few key reasons why I like it:

Revenue growth and large addressable market

One of the main things I look for is a business that is growing at a good pace and has plenty more room to grow. It’s the effect of compounding that can enable a business growing quickly to achieve good results over the long term, such as five years or longer.

I think that the quarter for the three months to March 2022 showed off how quickly Airtasker is actually growing. Total revenue rose 21.2% in that quarter to $8.6 million.

UK gross marketplace volume (GMV) went up by 138%. Airtasker’s UK marketplaces continue to scale with both demand (posted tasks) and supply (offers made by active taskers) growing “strongly”.

The US market is also growing very quickly. US ‘posted task’ growth increased 90% quarter on quarter. The ASX share is growing in the targeted cities of Miami, Kansas City, Dallas, and Atlanta. But it’s also building momentum in non-core US cities too. I think this is very promising for the future.

Both the UK and US are much larger markets than Australia.

While inflation (and its flow-on effects) aren’t helping the Airtasker share price and other tech shares, I think that Airtasker can benefit in some ways with growth of the average task value. The FY22 second quarter saw average task value rise by 24% quarter on year to $255.

Gross profit margin

One thing that I really like about Airtasker is that it has a gross profit margin of 93%. This means that 93% of the new revenue (which is growing quickly) is being turned into gross profit.

More gross profit means that the business can invest in business-growing activities such as marketing, product development, salaries, etc.

The gross profit margin should also help its other profit margins, like net profit after tax (NPAT), in time, when the business no longer invests as heavily for growth.

Cashflow

For rapidly-growing ASX shares, it can be tricky to balance spending money on growth and ensuring companies don’t burn through cash. Needing to do capital raising at the wrong time could be very dilutive for shareholders. Look at what happened to ASX travel shares at the start of the COVID-19 pandemic.

Airtasker seems to already have reached the positive cash flow stage of its development.

In the third quarter of FY22, the business generated $1 million of positive operating cash flow. It also had $32.8 million of cash at the bank.

If its gross profit margin stays very high and it keeps growing revenue, then I think the company can comfortably fund its own growth and keep investing in itself.

Airtasker share price

I think the Airtasker share price looks much more attractive after dropping over 50% in 2022 and 65% over the last year.

While some investors may have turned away from Airtasker, I think it has a very promising future if it can keep growing revenue by double-digits in the coming years.

The post My #1 ASX share idea for May 2022 appeared first on The Motley Fool Australia.

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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 recommended Airtasker Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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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