The Bubs Australia Ltd (ASX: BUB) share price is crashing back down to earth on Thursday.
In morning trade, the struggling infant formula company's shares are down 10.5% to 17 cents.
Image source: Getty Images
Why is the Bubs share price sinking?
This decline appears to have been driven by profit-taking from some investors after an incredible gain on Wednesday.
Bubs' shares rose 30% yesterday following the release of an update on its United States operations.
That update revealed that the company expects to achieve the top end of its sales guidance range in the United States in FY 2023.
Management advised that the Bubs USA business achieved its first $1 million dollar month on the Amazon e-commerce platform in May. This meant the Bubs Direct-to-Consumer (DTC) business has now achieved net revenue of $1.8 million.
As a result, USA net revenue is expected to be at the upper end of the previous forecast range of between $20 million to $22 million.
What is unknown, though, is whether these are profitable sales. Bubs has a long history under its previous wealth-destroying management team of generating less cash receipts than product manufacturing and operating costs.
This has led to significant cash burn and meant the company has relied heavily on capital raisings.
Another unknown is how the company's key China business is performing. No update was provided on this side of the business, which could be an indication that there has been no improvement in its dismal performance.
This may explain why some investors are taking this rare gain as an opportunity to sell their Bubs shares.
Following today's decline, the Bubs share price is down 15% since this time last month and 72% over the last 12 months.
