Why is the Bubs share price sinking 7% today?

Bubs shares are under pressure on Monday…

| More on:
A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.

Image source: Getty Images

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

The Bubs Australia Ltd (ASX: BUB) share price is having a tough start to the week.

In afternoon trade, the infant formula company's shares are down almost 7% to 61.5 cents.

Why is the Bubs share price sinking?

The weakness in the Bubs share price may have been driven by a lukewarm response to the company's guidance upgrade from a leading broker.

According to a note out of Bell Potter, its analysts have retained their speculative hold rating and 75 cents price target on the company's shares.

While this still implies decent upside for the Bubs share price from the current level, it hasn't been enough to get investors excited. Particularly given some of the comments made by its analysts.

What did the broker say?

Bell Potter notes that Bubs has upgraded its guidance for FY 2022 revenue to over $100 million and its underlying EBITDA to be at least double what it recorded during the first half. The latter would mean EBITDA of ~$2.4 million.

Its analysts were a touch underwhelmed with the company's earnings guidance. Though, it acknowledges that management could have been conservative. The broker explained:

We had previously upgraded FY22e EBITDA forecasts to reflect the benefit of an additional ~$12m of revenue linked to US sales agreements. On face value FY22e EBITDA guidance appears softer than our previous forecast of $4.5m and likely encapsulates a degree of conservatism. We note the implied delta on 1H22- 2H22e gross revenue is ~9% (ex-provision reversals), which compares to the estimated IMF gross contribution margin ~20% (GM less marketing and distribution).

Looking ahead, the broker remains positive on the potential of the company if things go to plan, but appears to waiting for proof before going all in. It concluded:

Our Hold, Speculative risk rating remains unchanged. We continue to see BUB as a high ceiling early stage FMCG entity with the scope to become a ~$50m EBITDA business if the upper bound of sales targets within the Alpha Group distribution agreement are achieved and if permanent US market access is achieved at comparable gross contribution margins to the IMF business today. To a degree an element of success is already reflected to the current market value.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

Stock market crash concept of young man screaming at laptop on the sofa.
Share Fallers

Guess which ASX 200 stock just crashed 31% on slumping sales

The $1.3 billion ASX 200 stock is getting hammered today.

Read more »

Photo of a happy couple with their new car and car keys.
Consumer Staples & Discretionary Shares

Up 55% this year, why Macquarie believes Eagers Automotive shares can charge higher

Eagers set to capitalise as BYD’s Australian sales surge.

Read more »

Two race cars on a track at sunset.
Consumer Staples & Discretionary Shares

Down 36% in a year, this ASX 300 stock is one to watch

After a major sell-off, this high-performance cooling specialist might be gearing up for a turnaround.

Read more »

Two laughing young women hold shopping bags and ride an escalator up to another level in a Scentre Group shopping centre.
Broker Notes

3 ASX consumer sector shares to buy in July: expert

A leading expert has named its top 3 picks.

Read more »

person with large headphones looking puzzled holding their hand to their chin.
Broker Notes

Does Macquarie prefer Harvey Norman or JB Hi-Fi shares?

Both companies have market-beating long-term track records.

Read more »

Person taking out a slice of pizza from a pizza box.
Consumer Staples & Discretionary Shares

Why now is the time to buy the big dip on Domino's shares

Down 46% in a year, a leading expert forecasts brighter days ahead for Domino’s shares.

Read more »

Three people sit on safe cheering with pizza on table
Consumer Staples & Discretionary Shares

Food fight! Have Guzman Y Gomez shares outperformed Domino's since ASX debut?

Lets find out who’s topping the menu for investors

Read more »

Woman chooses vegetables for dinner, smiling and looking at camera.
Consumer Staples & Discretionary Shares

Here's the Coles dividend forecast from top analysts through to 2029

Can this defensive business provide pleasing payouts? Let’s take a look…

Read more »