The Bubs Australia Ltd (ASX:BUB) share price is down 42% in 12 months. Is it in the buy zone or should you stick to A2 Milk Company Ltd (ASX:A2M)?
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The Bubs Australia Ltd (ASX: BUB) share price has been a very disappointing performer over the last 12 months.
Since this time last year, the infant formula and baby food company’s shares have lost 42% of their value.
As a comparison, over the same period the A2 Milk Company Ltd (ASX: A2M) share price has risen a sizeable 37%.
To put this into context, $10,000 invested in Bubs shares a year ago would now be worth $5,800, whereas $10,000 invested in a2 Milk shares would be worth $13,700. That a sizeable difference of $7,900.
Why is the Bubs share price underperforming?
There are a couple of reasons for Bubs underperformance over the last 12 months.
The first is its full year result for FY 2020. For the 12 months ended 30 June 2020, Bubs delivered a 32% increase in gross revenue to $62 million.
While this is strong growth, it was actually a slowdown on its first half revenue growth of 37%. Which is all the more surprising given the insatiable demand that a2 Milk experienced in the second half due to stock piling during the pandemic.
What else is weighing on Bubs’ shares?
Also weighing on the company’s shares has been its penchant for capital raisings.
Over the last two years the company has tapped the market or institutional investors no less than three times. This has caused significant dilution for shareholders.
Though, the company may think twice about another capital raising in the near future. The response from retail investors to its latest one wasn’t overly positive.
So much so, the Bubs share price is now trading at 76 cents. This is 5% lower than its share purchase plan price of 80 cents.
If there’s not a big improvement in its share price between now and the (recently extended) closing date, then the company is very likely to fall short of its capital raising target and be forced to scale back its plans. These plans include buying a manufacturing facility in China in the hope of gaining market access that way.
Should you buy Bubs shares?
While Bubs may come good in the end, after years of overpromising and underdelivering, I’ve lost faith in management’s ability and have no intention to invest in the near term.
I would suggest investors stick to a2 Milk shares and watch Bubs from the safety of the sidelines.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia owns shares of A2 Milk. 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.