The Bubs Australia Ltd (ASX: BUB) share price is up by 87% in the last two months, but I think it could go on to create long-term success from here.
Bellamy's Australia Ltd (ASX: BAL) and a2 Milk Company Ltd (Australia) (ASX: A2M) have both shown there is big demand for infant formula in Australia and abroad.
Bubs is trying to capture some of this market for themselves. It's one of the most speculative companies I've written about but I think it genuinely has an exciting future for the following reasons:
High quality product with a difference
Bubs has had its product certified as 'Australian Certified Organic'. This instantly puts it at a higher value product compared to some competitors.
The difference is that it's made of goat milk. Bubs is marketing its goat milk products as being good for people with sensitivity to cow milk. It can offer better digestion and healthier benefits compared to cow milk.
Australian distribution channels
Bubs has rapidly rolled out its sales network across Australia so that it is on the same shelves as its competitors in chemists, Woolworths Limited (ASX: WOW) supermarkets and Wesfarmers Ltd's (ASX: WES) Coles supermarkets.
Bubs only has a market capitalisation of $54 million, so it wouldn't take a lot of revenue growth to increase the market capitalisation at a quick rate.
Overseas distribution channels
Bubs is not the first infant formula company to chase the golden egg of the Chinese market. It recently signed an agreement with NetEase Kaola and Brilite Nutritionals.
This is a promising step by the company, it means it could unlock a large and lucrative market. Whether it actually unfolds profitably is something that only time can tell.
Risks
There are several risks with the company. Bellamy's has shown how difficult it is to keep all the necessary licences and product production on track.
This is a small, speculative company at the moment, so any investment could potentially go to zero.
Foolish takeaway
Bubs is a much riskier proposition than most ASX300 businesses, but it could beat the market quite convincingly if an investor holds for a few years. It's not yet making a profit or paying a dividend but it could get there in a few years. I will be keeping a close eye on Bubs to see what happens.
