Why the Bubs share price is up 65% in 2 months

The Bubs Australia Ltd (ASX:BUB) share price has been a very strong performer over the last two months. Here's why it rocketed higher…

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The Bubs Australia Ltd (ASX: BUB) share price has been a strong performer over the last few weeks.

Since this time in May, the infant formula and baby food products company's shares have risen a massive 23%.

And if we go back a further month, then its performance is even more impressive.

The Bubs share price has stormed a remarkable 65% since this time in April.

Why has the Bubs share price surged higher?

There have been a couple of catalysts for this strong share price performance over the last couple of months.

The first was an impressive third quarter update in April, which revealed record quarterly revenue of $19.7 million. This was a 67% jump on the prior corresponding period and a 36% lift on the second quarter.

But perhaps what was most promising with its quarterly update, was news that Bubs is now generating positive operating cashflow. For the quarter, Bubs recorded positive operating cashflow of $2.3 million.

This appears to demonstrate that it has finally reached a scale which means its operations are profitable. Which is a big positive as it has burned through a significant amount of cash in recent years while essentially selling its products at a loss.

Interestingly, this is similar to what A2 Milk Company Ltd (ASX: A2M) experienced back in 2015. Since then it has gone on to become an extremely profitable business.

What else has got investors excited?

Another announcement that got investors excited was a supply agreement with supermarket giant Coles Group Ltd (ASX: COL).

Last month Bubs revealed that its Bubs Organic Grass Fed Infant Formula will be distributed to 482 Coles supermarkets. Initial orders were to be processed in the middle of May, with its products expected on-shelf early this month.

This is in addition to its existing agreement for Bubs Goat Milk Infant Formula (which is ranged in 561 stores) and Bubs Organic Toddler Snacks (which is ranged in up to 804 stores).

Furthermore, within the same announcement the company revealed that fellow supermarket operator Woolworths Group Ltd (ASX: WOW) has increased its supply agreements. This will see Bubs Organic Grass Fed Infant Formula ranged in 800 Woolworths stores and Bubs Goat Milk Infant Formula in 654 Woolworths stores.

Is it too late to invest?

I don't believe it is too late to invest with a long term view.

Given the progress that Bubs is making with its margins, its increasing footprint, and strong demand in China, it looks well-positioned to deliver strong earnings growth over the next decade.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO. The Motley Fool Australia owns shares of A2 Milk, COLESGROUP DEF SET, and Woolworths Limited. The Motley Fool Australia has recommended BUBS AUST FPO. 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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