Thanks to a stunning 29% rise on Monday the Bubs Australia Ltd (ASX: BUB) share price has now risen a remarkable 344% in just three months.
Furthermore, as of yesterday's close the baby food and infant formula company's shares had reached 64.5 cents, some 545% higher than its 10 cents IPO price at the start of the year.
Why have its shares rallied so strongly?
Investors are becoming increasingly bullish on the company's prospects in the massive China market.
And it isn't hard to see why. Supply agreements with Brilite Nutritionals and NetEase Kaola.com have given the company exposure to millions of its target demographic.
The deal with Brilite gives Bubs access to over 2,000 mother and baby stores and the Netease Kaola.com deal increases its online opportunity significantly.
At the last count Netease Kaola.com had 15 million customers, 42% of which had purchased baby products in the past.
I believe this bodes well for Bubs. After all, an investor presentation last week revealed that the mother and baby stores and B2C eCommerce channels accounted for 68% of total infant formula sales by value in China.
Should you invest?
While at this stage it is difficult to know whether the company will be able to replicate the success of a2 Milk Company Ltd (Australia) (ASX: A2M) in China, it certainly has positioned itself as well as it can to do so.
But with a market cap in excess of $120 million its shares are certainly on the expensive side considering it recently reported full-year sales of $4.7 million.
With so much growth built into its share price already, I feel Bubs would only be suitable for investors with a high tolerance for risk.
In light of this, I would suggest investors that are interested in Bubs consider just a small investment in the company at this point.
For those with a lower tolerance for risk, I would suggest you keep your powder dry and wait until its next quarterly update is released. In my opinion this will be the one that shows whether or not its strategy is being executed successfully.
