Bubs Australia Ltd (ASX:BUB) shares sink 12% lower: Time to invest?

Is the Bubs Australia Ltd (ASX:BUB) share price in the buy zone after its sharp decline?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While a good number of shares sank deep into the red during today's market selloff, few fell as hard as the Bubs Australia Ltd (ASX: BUB) share price.

The goat milk infant formula company's shares finished the day 12% lower at 49 cents despite there being no news released.

At one stage its shares looked set to make a new 52 week low of 46 cents but stopped short at 47 cents before recovering slightly.

Why are Bubs' shares sinking lower?

Almost all infant formula shares have been under pressure today. A2 Milk Company Ltd (ASX: A2M) shares fell 3%, Bellamy's Australia Ltd (ASX: BAL) dropped 6%, and Wattle Health Australia Ltd (ASX: WHA) tumbled 4%.

As these shares trade on premium valuations, I suspect investors may have been hitting the sell button in a panic after bond yields widened.

As the risk-free rate increases, so too does the required rate of return on investments. This is because if investors are going to take on risk, there needs to be a sufficient reward.

In order to gain a greater rate of return on an investment to compensate for a higher risk-free rate, a share needs to be trading at a more attractive price. This inevitably leads to shares rerating to "fairer" multiples.

Is now the time to invest?

While I think a2 Milk and Bellamy's are in the buy zone now for patient investors, I'm not so sure about Bubs. Although its shares are within a whisker of their 52-week low, they are still trading at approximately 13x sales.

As a comparison, a2 Milk and Bellamy's are trading at just over 8x and 3x sales, respectively.

Unless Bubs delivers some stellar sales growth in FY 2019, I fear its shares could be dragged even lower in the coming months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.

More on Share Fallers

A worried man holds his head and look at his computer.
Share Fallers

Why Graincorp, Light & Wonder, Orica, and Wildcat shares are falling today

These shares are having a tough time on Thursday. But why?

Read more »

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today
Share Fallers

Why Insignia, Light & Wonder, Mineral Resources, and Nuix shares are sinking today

These shares are having a difficult time on hump day. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Endeavour, Global Data Centre, OFX, and Paladin Energy shares are dropping today

Why are these shares under pressure today? Let's find out.

Read more »

A man sits wide-eyed at a desk with a laptop open and holds one hand to his forehead with an extremely worried look on his face as he reads news of the Bitcoin price falling today on his mobile phone
Share Fallers

ASX 200 uranium stock alert: Paladin Energy shares just crashed 29%!

Paladin Energy shares are under intense selling pressure on Tuesday.

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Champion Iron, Endeavour, Infomedia, and Resolute Mining shares are sinking today

These shares are starting the week in the red. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Arcadium Lithium, Block, Jumbo, and Mineral Resources shares

These shares are ending the week in the red. Why are investors selling them?

Read more »

A woman with short brown hair and wearing a yellow top looks at the camera with a puzzled and shocked look on her face as the Westpac share price goes down for no reason today
Share Fallers

Why Clearview, NAB, Resolute Mining, and Westpac shares are dropping today

These shares are under pressure today. But why?

Read more »

A man looking at his laptop and thinking.
Bank Shares

Why is the Bendigo Bank share price tanking today?

There are a few things that could be driving this bank lower today.

Read more »