Tag: Motley Fool

It’s no secret that some of the most exciting shares out there are those involved in the payments space. How we pay for things has been of the areas most ripe for disruption, particularly in the shadow of the coronavirus pandemic. Much has been made of the pandemic-induced acceleration of the ‘death of cash’ this year. Just look at how ASX payments company shares like Afterpay Ltd (ASX: APT) and Sezzle Inc (ASX: SZL) have performed this year (both up more than 1,000% since March).

But that’s just on the ASX. Some of the world’s most exciting payments shares are listed over in the United States – Visa Inc (NYSE: V), Mastercard Inc (NYSE: MA) and American Express Inc (NYSE: AXP) to name a few.

One of the most exciting companies that I’ve been watching in 2020, however, has been PayPal Holdings Inc (NASDAQ: PYPL). You might be familiar with PayPal, and perhaps its history as one of Tesla Inc (NASDAQ: TSLA) CEO Elon Musk’s earliest innovations.

Today, PayPal is a payments giant, with a market capitalisation of US$239 billion.

But a new development today has grabbed my attention further.

According to reporting in the Australian Financial Review (AFR), PayPal is set to offer users “the option to buy, hold and sell” bitcoin and other cryptocurrencies. According to the report, PayPal said this week that, “from early next year Bitcoin and other cryptocurrencies can be used as an instrument of exchange for those wanting to buy things from PayPal’s 26 million merchants.

With this move, PayPal joins Square Inc (NASDAQ: SQ), another US payments company that has offered cryptocurrency transactions for a while now. The AFR also reports that the pandemic has triggered a massive increase in usage of Square’s Cash App for cryptocurrency transactions.

So why is this significant?

Well, PayPal is a gorilla in the payments space. By making this move, it lends a lot of legitimacy to cryptocurrencies like bitcoin as an accepted payment method – and perhaps even as a store of wealth.

Whilst cryptocurrencies like bitcoin have been embraced by many investors, they remain a controversial asset for their anonymity, and use for nefarious purposes such as money laundering and black market commerce.

This move by PayPal might be a significant one in hindsight if it truly allows the legitimate use of cryptocurrencies as a proper currency.

If this endeavour proves successful for PayPal, I wouldn’t be surprised if it spurs further adoption of cryptocurrencies in the payments space. Fast forward 5 years, and we may well see ASX players like Afterpay and Zip Co Ltd (ASX: Z1P) offering cryptocurrency payments. Watch this space!

More reading

• Top brokers name 3 ASX shares to sell today
• Why you should pay attention when management buy (or sell) ASX shares
• Broker updates are mixed on these 6 high profile ASX 200 shares
• 3 super reasons to buy ASX 200 shares today
• The best ASX shares to buy during a market crash

Sebastian Bowen owns shares of American Express, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Mastercard, PayPal Holdings, Square, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Mastercard, PayPal Holdings, and Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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At lunch on Friday the S&P/ASX 200 Index (ASX: XJO) has failed to follow the lead of U.S. markets and is dropping lower. The benchmark index is currently down 0.3% to 6,154.3 points.

Here’s what has been happening today:

NAB provisions update

The National Australia Bank Ltd (ASX: NAB) share price is pushing higher despite announcing a number of items that will impact its upcoming second half results. According to the release, the bank’s second half earnings will be reduced by a net increase in provisions and impairments of $642 million before tax. The biggest contributor to this is customer-related remediation matters of $380 million before tax.

BlueScope impresses.

The BlueScope Steel Limited (ASX: BSL) share price is surging higher on Friday after the steel producer revealed that its performance has improved materially in FY 2021. BlueScope released a trading update which revealed that it expects to report underlying earnings before interest and tax (EBIT) of $340 million for the first half. This will be a 30% increase on the second half of FY 2020 and a 12.4% lift on the prior corresponding period.

Webjet pushes higher.

The Webjet Limited (ASX: WEB) share price is pushing higher today following the release of a trading update. That update revealed that the online travel agent’s bookings and transaction value are still down materially from pre-COVID levels. The WebBeds business, for example, reported total transaction value (TTV) of 12% of 2019’s levels for the first week of October. Two big positives, though, were that Webjet’s cash burn is lower than forecast and its Webjet OTA business is winning market share.

Best and worst ASX 200 performers.

The BlueScope share price is the best performer on the ASX 200 today with an 11% gain. This follows the release of its guidance for the first half. The worst performer has been the Iluka Resources Limited (ASX: ILU) share price with a 46% decline. However, this relates to the demerger of its royalties business which has taken place today.

More reading

• Why Adore Beauty, BlueScope, Qantas, & Webjet shares are charging higher
• NAB (ASX:NAB) share price pushes higher despite announcing further provisions
• BlueScope Steel (ASX:BSL) share price on watch after first half profit guidance
• 1 ASX 200 share to buy before an effective COVID vaccine announcement
• 5 things to watch on the ASX 200 on Friday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 Weebit Nano Ltd (WBT: ASX) share price has surged today following the release of its Q1 FY21 update.

In early morning trade, the technology company’s share price has risen 17.6% to $1.56. In comparison, the All Ordinaries Index (ASX: XAO) is dead flat at 6,381 points.

Q1 FY21 update

For the period ending 30 September 2020, Weebit reported significant technical progress despite COVID-19 challenges. Its ReRAM technology is on track to transfer to the semiconductor fabrication plant, bringing it a step closer to commercialisation.

During the quarter, Weebit received $2.75 million from a successful capital raise, further strengthen its balance sheet.

Operating cash flows consisted of staff costs and administration, which totalled $1 million for the 3-month period. Payments to related parties over Q1 FY21 were $584,000, which also included fees paid to the directors.

Weebit closed the quarter with $9 million in cash on hand and equivalents

ReRAM progress

Weebit announced on 7 October that it had completed the stabilisation process for its ReRAM technology at Leti’s development facilities.

The stabilisation process saw reduced cell-to-cell and die-to-die non-uniformity, which increased the level of functional cells and batch-to-batch repeatability. The key requirement achieved improved memory functionality to 99%, and was in line with industry standards.

Weebit CEO, Mr Coby Hanoch commented on the milestone:

The successful completion of the stabilisation process follows four years of extensive research and development by the joint Weebit and Leti engineering teams, which has created a unique and highly competitive ReRAM technology. We remain on track to initiate the transfer our technology to a production fab by the end of the 2020, with discussions already underway with potential production partners.

Management appointment

In September, Weebit appointed Mr Eran Briman as vice president of marketing and business development. The role will see Mr Briman defining the company’s business model and structuring partnership agreements.

Mr Briman’s background entails extensive knowledge of the semiconductor industry. He previously held the title of vice president marketing and corporate development at Ceva. Mr Briman was responsible for outlining the business strategy, stakeholder relationship management, and enhancing market penetration into various applications. This included mobile, automotive, artificial intelligence, and internet of things (IoT).

Commenting on the appointment, Hanock said:  

Eran’s vast industry experience within the embedded and standalone memory markets will be invaluable as we continue to engage with potential partners and customers to secure first commercial agreements. In the future, we will also leverage Eran’s knowledge of the Artificial Intelligence domain as we look to commercial our neuromorphic computing technology.

Outlook

Weebit noted it is now engaging in discussions with a production partner ahead of its technology transfer to the production fab. This follows the successful testing of its silicon oxide ReRAM technology meeting all production requirements.

The development of the memory module remains a key priority for Weebit, and the company reports it is on track to be available to market.

The Weebit share price has skyrocketed this year, up more than 280% since 2 January.

More reading

• Why the Carbon Revolution (ASX:CBR) share price soared 14% higher today
• The ResApp (ASX:RAP) share price is soaring 10% today. Here’s why.
• Why the Weebit (ASX:WBT) share price soared 24% Tuesday
• WISR (ASX:WZR) share price jumps higher on strong trading update
• Why did the Forbidden Foods (ASX:FFF) share price tumble 5% today?

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to end the week with a decline. At the time of writing, the benchmark index is down 0.25% to 6,157.7 points.

Four shares that have not let that hold them back are listed below. Here’s why they are charging higher:

Adore Beauty Group Limited (ASX: ABY)

The Adore Beauty share price has hit the ASX boards today and stormed 18.5% higher to $8.00. This morning the online beauty retailer completed its IPO, raising $269.5 million at a price of $6.75 per share. These funds will be used to support the company’s growth strategy and future growth opportunities.

BlueScope Steel Limited (ASX: BSL)

The BlueScope Steel share price has jumped over 11% higher to $16.00. This follows the release of a trading update this morning which included guidance for the first half. According to the release, the steel producer expects to report underlying earnings before interest and tax (EBIT) of $340 million for the first half. This represents a 30% increase on the second half of FY 2020 and a 12.4% lift on the prior corresponding period.

Qantas Airways Limited (ASX: QAN)

The Qantas share price is up over 2% to $4.53 following the release of its annual general meeting presentation. At the meeting, the airline operator noted that revenue is likely to be lower for some time. In light of this, it has identified $15 billion in cost savings over the next three years. This is mostly through reduced flying activity. Qantas is also targeting $1 billion in ongoing cost improvements from FY 2023.

Webjet Limited (ASX: WEB)

The Webjet share price has climbed almost 3% to $4.05. Investors have been buying the online travel agent’s shares following the release of a trading update at its annual general meeting. Although Webjet’s bookings are still down materially, investors appear pleased that its cash burn has been better than forecast. It also revealed significant market share gains in Australia.

More reading

• BlueScope Steel (ASX:BSL) share price on watch after first half profit guidance
• 1 ASX 200 share to buy before an effective COVID vaccine announcement
• 5 things to watch on the ASX 200 on Friday
• Webjet (ASX:WEB) share price on watch after FY 2021 trading update
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 National Australia Bank Ltd (ASX: NAB) share price is edging higher on Friday despite announcing new provisions and impairments.

At the time of writing, the NAB share price is up almost 0.5% to $19.48.

What did NAB announce?

This morning the banking giant announced a number of items that will impact its upcoming second half results and a change in the reporting of its Wealth business.

According to the release, the bank’s second half earnings will be reduced by a net increase in provisions and impairments of $642 million.

The biggest contributor to this is customer-related remediation matters of $380 million before tax. This equates to $266 million after tax. These provisions comprise $245 million before tax for Wealth-related matters and $135 million before tax for Banking-related matters.

Management advised that this relates to non-compliant advice provided to Wealth customers, adviser service fees charged by NAB Financial Planning, and a higher allowance for ongoing liabilities associated with the existing Wealth remediation program.

In addition to this, NAB is recording a net increase in payroll remediation provisions of $128 million before tax. This follows a previously announced review that identified a range of potential payroll under and over payments issues.

Finally, NAB revealed an impairment of property-related assets of $134 million before tax. This primarily relates to plans to consolidate NAB’s Melbourne office space. This follows the bank’s plan for more colleagues to adopt a flexible and hybrid approach to working over the longer term. This includes a mix of working remotely and in offices for the purposes of collaboration, planning, and creating the right culture.

Management advised that the provisions and impairment are expected to reduce its Common Equity Tier 1 capital (CET1) ratio by approximately 15 basis points.

Wealth changes.

NAB has also announced a change in its Wealth reporting ahead of its results release.

Following the agreed sale of 100% of its MLC Wealth business to IOOF Holdings Limited (ASX: IFL), all earnings associated with MLC Wealth will transfer to Discontinued Operations.

Though, it notes that the completion of the sale remains subject to certain conditions, including regulatory approvals.

More reading

• ASX 200 down 0.75%: Big four banks drop, Healius hits record high, Zip slides lower
• AMP (ASX:AMP) share price in focus as Wealth business improves
• 5 ASX 200 events to watch for this week
• More royal commission pain: NAB (ASX:NAB) gets a $15 million fine
• Up 10% this month: Is the NAB (ASX:NAB) share price a buy?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 market crash may have dissuaded some investors from buying shares when seeking to make a passive income. However, the yields available across the stock market suggest that equities offer a relatively high income return while interest rates are low.

Through buying a diverse range of companies with affordable shareholder payouts, you could build a resilient income stream that improves your financial position in the long run.

Buying shares to make a passive income

Some investors may naturally seek to sell shares and buy less risky assets to make a passive income after the 2020 COVID-19-led market crash. It showed that equity markets can suddenly become extremely volatile, which can lead to some companies being forced to reduce or even cancel their dividends.

However, on a relative basis, shares continue to offer a more generous income return than other mainstream assets. Many companies continue to pay dividends. And, since their share prices have fallen, it is possible to build a worthwhile income portfolio containing high-yielding stocks.

At the same time, assets such as cash and bonds now offer limited passive income opportunities due to a loose monetary policy being followed by policymakers. Meanwhile, high house prices may mean that yields are relatively low for property investors at the present time. Therefore, focusing your capital on shares could be a sound means of obtaining a generous income return at the present time.

Dividend affordability

Of course, it is important to only buy those shares that have affordable dividends when seeking to make a passive income. This may mean that their current dividend is affordable, in terms of being covered by net profit. It may also mean that they have defensive business models that are not negatively impacted by an uncertain economic outlook to the same extent as some of their cyclical peers.

Companies that have affordable dividends may also be able to raise shareholder payouts at a faster pace in the coming years. Although inflation may not currently be viewed as a major threat facing investors, the scale of monetary policy stimulus in many major economies could mean that obtaining positive real-terms dividend growth becomes increasingly important in the coming years.

Reducing risk through diversification

Even if a company’s dividend is affordable, it is a sound idea to diversify across sectors and regions when making a passive income from equities. Any industry or region can experience a difficult period that affects even the very best companies that operate in that area. Therefore, it is sensible to own a variety of businesses in your portfolio. This will help to reduce overall risk and could mean that you enjoy a more resilient income return in the coming years.

With the cost of buying shares now being relatively low as online sharedealing has increased in popularity, diversifying is an affordable strategy for almost all investors. It could help you to overcome future threats and enjoy a rising income in the coming years.

More reading

• Why the Douugh (ASX:DOU) share price is up almost 1000% since its IPO
• Why you shouldn’t sweat the small stuff when it comes to investing
• Visa rolls out Tap-to-Phone contactless technology
• I think the Bubs (ASX:BUB) share price is a steal
• Woodside (ASX:WPL) share price still at 16-year lows. Time to buy?

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 Douugh Ltd (ASX: DOU) share price has been a strong performer on Friday.

In morning trade the neobank’s shares are up a sizeable 8% to 32.5 cents.

This means the Douugh share price is now up an impressive 983% since listing on the ASX at 3 cents per share on 6 October following its IPO.

What is Douugh?

Douugh is aiming to be a neobank with a difference. It is on a mission to democratise banking and make the world financially healthier.

It also aims to take an artificial intelligence-first approach to helping people spend wisely, save more, and build their wealth.

One key point of difference between it and other neobanks, such as Xinja and 86 400, is that Douugh is leveraging a wholesale BaaS model. This is instead of becoming its own licenced authorised deposit-taking institutions (ADI).

It is developing an integrated, AI-powered banking and wealth management app which is expected to go live in the United States in October before launching in Australia early in 2021.

Douugh’s CEO, Andy Taylor, told Business Insider the he believes the company is better placed than its rivals to disrupt the banking sector.

He said: “If you look at Australia’s neobanks right now, they’re not building anything, they’re not solving a problem and their business model does not allow them to because they’ve got to get straight into lending on the mortgage side, and you can see they’re struggling.”

Mr Taylor feels the company’s plan to take advantage of Australia’s new open banking regime and artificial intelligence is the way forward.

The CEO explained: “It has always been about asking how can we help people better manage their money and live financially healthier. We’ll input all this data, train up the AI system to make your money work for you.”

But the company won’t be stopping there. It has its eyes on the wealth management industry, which the likes of Commonwealth Bank of Australia (ASX: CBA) and other big four banks are retreating from.

Mr Taylor said: “We have built that underlying platform and the next stage of that is for us to introduce wealth management into that and invest that money for you. And that’s what’s coming in the next six months.”

“We’re talking about putting you in the right portfolio to help you achieve your personal goal faster, and in a way that’s managed, diversified, and is not promoting you to speculate your money on single stocks,” he added.

More reading

• Douugh and Afterpay were among the most traded shares on the ASX last week
• Is the Douugh Ltd (ASX: DOU) share price the next ASX tech unicorn?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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We Fools love to spread the good word about the benefits and wonders of investing in ASX shares. But the reality is that investing can be a stressful process. We are (of course) using our precious personal savings when we invest – the hard-won fruits of our labour, sweat and tears. Putting these savings into something which we can’t predict the value of tomorrow or next week can be scary and discomforting.

And on top of that, there are literally thousands of companies, exchange-traded funds (ETF), listed investment trust (LITs) and other investment vehicles to choose from. And that’s just on the ASX. The UK, Japanese, Hong Kong and European markets are also open to investment from Australia. And let’s not forget the United States of America – the largest capital market by far in the world.

All of these choices can also be stressful, because investing is a game of opportunity cost. We all have a finite amount of capital we can invest in the markets. Thus, if we choose one company, say Woolworths Group Ltd (ASX: WOW), to invest in, we are also choosing not to invest in Coles Group Ltd (ASX: COL). That works on a macro scale as well. I’m sure most of you readers either own your own home, or want to one day. But in order to buy a home, you have to give up the opportunity to sink that money into the share market.

It’s these kinds of choices that can put new investors off shares. And even not-so-new investors. If you’ve had some bad luck on the markets with your shares, it doesn’t take much to just make you want to wash your hands of the whole thing.

Some invaluable investing advice

But I’m going to share one of the best pieces of advice I ever got. When I was new to the investing game, I asked someone for advice over the whole ‘shares vs. property’ debate.

Their answer was remarkably simple, yet poignant: “It doesn’t really matter, as long as you’re doing something“.

It was so relaxing to hear those words. If you’re tossing up between a house or shares, they are both good options. If you’re wondering whether to buy an ASX ETF or a US-based one, it doesn’t really matter. You’re doing something, and that’s all that counts.

So don’t sweat the small stuff! Sure, some investments might do better than others over time. We all get share calls wrong every now and again. But each one is a learning experience. And  even if you don’t like the investing process, there are other, no-involvement options to consider, such as ETFs or managed funds.

Now, I’m not promoting the idea that you can’t lose when you own any ASX share ever. If you’re a day-trader or someone who likes to ‘jump in and out’ of the markets, this advice doesn’t apply. But as long as you aim to invest your money with prudence and care, aiming for assets that stand to last the test of time, I don’t think you can go wrong. So don’t sweat the small stuff, if you’re doing something, you’re doing the right thing.

More reading

• 2 must-buy ASX dividend shares for income investors to snap up
• Coca-Cola Amatil (ASX:CCL) share price jumps on M&A speculation
• Broker updates are mixed on these 6 high profile ASX 200 shares
• Here’s where I would spend $10,000 on ASX shares today
• 3 super reasons to buy ASX 200 shares today

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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.

Visa Inc (NYSE: V) this week announced that it is officially rolling out its Tap to Phone contactless payment app in 15 markets, with plans to expand to the U.S. and other markets.

Tap to Phone provides point-of-sale terminals without any additional hardware. Sellers download the Tap to Phone app on their Android smartphones or tablets, and they can start accepting contactless payments from buyers who just tap their Visa cards to the merchants’ phone. Transactions are protected through EMV chip-based security.

This follows a successful pilot program that was launched earlier this year with Samsung.

Currently, the technology is available in various countries in Europe, the Middle East, Africa, the Asia-Pacific region, and Latin America, as well as Belarus, Malaysia, Peru, Russia, and South Africa. Upcoming launches are planned in Brazil, Italy, the United Arab Emirates, and the United Kingdom. The plan is to roll it out in the U.S. in 2021.

Fewer than 10% of the 180 million micro and small merchants (MSMs) around the world can accept digital payments. And a survey by Visa showed that 63% of MSMs said they would likely implement Tap to Phone for their own businesses, while approximately 50% of consumers said they would use it if offered. Visa expects this service to close that gap.

Mary Kay Bowman, global head of buyer and seller solutions at Visa, said: “With billions of phones around the world at the ready, the opportunity that comes with lighting them up as payment acceptance devices is enormous. Visa Tap to Phone could be one of the most profound ways to reinvent the physical shopping experience.”

The use of tap-to-pay technology has spike 40% this year due to the pandemic and social distancing, according to Visa. A recent survey by the company found that 48% of consumers said they would not shop at a store that only had payment methods that require contact.

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

More reading

• I think the Bubs (ASX:BUB) share price is a steal
• Woodside (ASX:WPL) share price still at 16-year lows. Time to buy?
• Link (ASX:LNK) share price drops lower following takeover update
• Insurance Australia (ASX:IAG) share price lower following Q1 update
• Beach Energy (ASX:BPT) share price pushes higher following Q1 update

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Visa. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Visa rolls out Tap-to-Phone contactless technology appeared first on Motley Fool Australia.

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

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I think the Bubs share price looks like a buy to me. Indeed, it has dropped so much Bubs could be a steal for investors today.

Looking at the Bubs share price, it has fallen 34% since 9 July 2020. That’s a big decline considering share markets have continued to be robust since July.

An overview of Bubs

Bubs is an infant nutrition business which specialises in infant formula. It was founded in 2006 by Kristy Carr, who is still the CEO of the business. It sells a variety of products including goat milk formula, organic grass-fed cow’s milk infant formula, organic baby food, cereals and toddler snacks.

The business recently launched Vita Bubs, a vitamin and mineral supplement range which are also formulated with goat milk. This is expected to be a high-margin division which will complement Bubs’ existing product range.

A key part of a consumer products business’ growth is where it’s sold. Bubs products are sold in stores like Coles Group Limited (ASX: COL), Woolworths Group Ltd (ASX: WOW), Chemist Warehouse and Baby Bunting Group Limited (ASX: BBN). Its products are exported to China, Vietnam, South East Asia and the Middle East.

What has been happening?

Bubs announced its FY20 result a couple of months ago, which was pretty impressive in my opinion when looking at the raw numbers. But the Bubs share price has been falling since then.

Total revenue grew by 32% to $62 million. Bubs infant formula sales rose by 58% to $30 million – this represented 55% of group revenue. Direct sales to China increased by 32% to $13 million.

What particularly impressed me about the result was that export markets outside of China delivered a fivefold increase – and this represented 10% of total revenue.

Another pleasing element of the result was that the normalised gross profit margin improved from 21% to 24%. Growing margins is the sign of a promising business.

Bubs’ infant formula has a gross profit margin of around 40%. So the more of Bubs’ total sales that are infant formula, the higher the overall Bubs’ margin will be. That’d be good for the Bubs profit and Bubs share price.

Investors didn’t seem to like the announcement by Bubs that it would try to fast track its SAMR (State Administration for Market Regulation) registration with a ‘created by Bubs’ localisation strategy with joint venture partner Beingmate.

The China market is a huge potential market for Bubs’ infant formula. I think it’s better for Bubs to be involved in China rather than miss out on most of that opportunity. Whilst not ideal, I think Bubs has made the right longer-term decision given the choices.

Why I think it’s a steal

The Bubs share price looks like a steal to me because of how far it has fallen and how much long-term potential Bubs has.

I think investors need to look at the long-term potential growth of Bubs. It’s aiming for revenue of $400 million by 2025, with a gross margin floor of 40%.

There may be continued difficulties in the first half of FY21 because of COVID-19 impacts. I’m looking ahead to FY22 and beyond. I think this short-term period could turn out to be the low point for the share price – though of course it could go a bit lower in the coming weeks, no-one can tell what a share price will do.

I’m particularly excited about the growth potential for Bubs’ export markets away from China. There’s more to Asia than just China. The products are already resonating with customers in Vietnam, where it could generate much more growth in the coming years.

At the current Bubs share price, I’d be very happy to buy shares.

More reading

• Why it makes sense to invest in ASX shares
• Where I’d invest $20,000 into ASX shares right now
• This is where I’d invest $1,000 right now into ASX shares
• Could the Bubs (ASX:BUB) share price be an A2 Milk (ASX:A2M) contender? 
• 3 small cap ASX shares I’d buy with $3,000 right now

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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