Is there still money to be made from Bubs shares?

The Bubs Australia Ltd (ASX: BUB) share price has risen by around 20% since the company announced that it was working with the United States government to lessen the infant formula crisis in the US.

Bubs is one of the largest infant formula businesses in Australia with a current market capitalisation of $358 million according to the ASX.

It now sells a variety of different products including goat milk infant formula, cow milk infant formula, goat milk products for adults, and organic snacks for toddlers.

US win

For readers who aren’t aware, Bubs Australia has committed to sending at least 1.25 million infant formula tins to the US.

The USA Food and Drug Administration (FDA) said that it would exercise its discretion for the immediate import, sale, and distribution of all six ranges of Bubs infant formula products in the US.

Last week, Bubs announced that it had expanded its US bricks-and-mortar footprint with The Kroger Co and Albertsons companies. This means Bubs infant formula and toddler products will be ranged in more than 4,000 stores across 35 states.

The first shipment of Bubs infant formula under the US infant formula plan has been purchased by Kroger and Co and Albertsons. The products are expected on the shelf starting 20 June 2022.

Bubs said it’s continuing to work with Australian and global distribution partners to ensure reliable supply for all families.

Recently, The Age reported on the positives of the move, as outlined by Wilsons Advisory analyst James Ferrier and Sam Teeger from Citi.

Optimism about the Bubs share price

Talking about the benefits of Bubs’ presence in the US market, Ferrier said that this could accelerate Bubs’ brand awareness in the US. The company was already looking to expand in the US before this initiative.

The deal would add $20 million in sales, though noted that this transaction was technically a one-off. However, the potential brand awareness boost could accelerate the trajectory of sales in the US for Bubs.

Citi rates the Bubs share price as a buy and thinks that the US is a “promising” market for the ASX share. The US government’s assistance could be “helpful for the company’s marketing efforts” and the broker believes it helps position the brand as a safe and reliable manufacturer.

Negatives to be aware of

The Age also referenced some thoughts about Bubs that could be a downside.

Jonathan Snape from Bell Potter thinks that while the US initiative is a benefit that could lead to $30 million of sales, it’s only a one-off. Indeed, the FDA’s fast-tracking process ends in November 2022. That’s why Bell Potter thinks the boost is largely temporary.

Some other potential negatives include general share market volatility and the need for capital to deliver on its strategy and growth. Snape also raised possible supply chain impacts, regulation and licence requirements, key management position risk, and competition.

After the jump in the Bubs share price, Snape downgraded Bubs to a “hold, speculative risk”.

The post Is there still money to be made from Bubs shares? appeared first on The Motley Fool Australia.

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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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