Why the A2 Milk (ASX:A2M) share price is surging 8% higher today

It has been a good day for A2 Milk shares…
The post Why the A2 Milk (ASX:A2M) share price is surging 8% higher today appeared first on The Motley Fool Australia. –

The A2 Milk Company Ltd (ASX: A2M) share price has been a very strong performer on Wednesday.

In morning trade, the infant formula company’s shares are up 8.5% to $6.30.

Why is the A2 Milk share price surging higher?

The catalyst for the rise in the A2 Milk share price on Wednesday has been the release of an update from one of its smaller rivals.

This morning Bubs Australia Ltd (ASX: BUB) surprised the market by releasing its first quarter update well ahead of its usual release date.

It appears as though the company could not wait to reveal just how much its performance has improved in FY 2021. After delivering a host of very disappointing quarterly updates over the last 12 months, Bubs has returned to form at last.

For the three months ended 30 September, Bubs reported a 96% year-on-year increase in gross revenue to $18.5 million. This was also an increase of 45% from the fourth quarter of FY 2020 and 30% from the first quarter of FY 2019.

Bubs Founder and CEO, Kristy Carr, commented: “Bubs has largely put the disruption and challenges of COVID-19 behind us, delivering a turnaround to high growth during the quarter as we revamped our business strategy in response to the rapidly changing market dynamics.”

What’s driving this growth?

A key driver of this growth was its China business. Sales across the Chinese Daigou, CBEC and General Trade channel increased 156% over the prior corresponding period to $9.8 million.

This has sparked hopes that the tough times are now behind the infant formula market, which goes some way to explaining why the A2 Milk share price is performing so positively today.

However, it is worth remembering that A2 Milk and Bubs are two very different companies. With quarterly sales of just $18.5 million, it doesn’t take much to move the needle for Bubs.

Though, investors won’t have to wait long to find out if A2 Milk’s sales are improving. In just a touch over a month the company is due to hold its annual general meeting. Management traditionally provides an update on its performance and outlook at these events.

No doubt all eyes will be on the A2 Milk share price that day.

The post Why the A2 Milk (ASX:A2M) share price is surging 8% higher today appeared first on The Motley Fool Australia.

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More reading

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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 A2 Milk and BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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