This infant formula company started the month on a high…
The post Why the Bubs (ASX:BUB) share price surged 22% higher appeared first on The Motley Fool Australia. –
The Bubs Australia Ltd (ASX: BUB) share price was an incredibly strong performer on Tuesday.
The embattled infant formula company’s shares jumped a massive 22% to 41 cents.
Despite this sizeable gain, the Bubs share price is still down a sizeable 62% over the last 12 months.
Why did the Bubs share price jump 22%?
Investors were bidding the Bubs share price higher on Tuesday following a promising development in China.
On Monday, the Chinese government announced that it will support couples who wish to have a third child. This compares to its previous policy which limited families to just two children.
The Chinese government revealed that it is making the move due to the country’s ageing population, which continues to grow. According to Xinhua, China’s population aged 60 or above accounted for 18.7% of its total population in 2020, 5.44 percentage points higher than in 2010.
The new policy is expected to help improve China’s population structure, actively respond to the ageing population, and preserve the country’s human resource advantages.
How does Bubs benefit?
As an infant formula manufacturer with a keen focus on the China market, the prospect of a quicker birth rate is a big positive for Bubs.
Especially given how there were concerns that the country’s infant formula market would soon fall into a contraction due to its declining birth rate.
However, it is worth remembering that this doesn’t guarantee that Bubs’ sales will pick up. Competition in the lucrative market continues to increase and domestic brands are becoming increasingly popular with consumers ahead of Bubs and A2 Milk Company Ltd (ASX: A2M).
And while a2 Milk may have a marketing budget that allows it to compete, Bubs doesn’t have that luxury and is already burning through bucket loads of cash each quarter.
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