US And Asian Markets Will Drive Premium Infant Formula Demand

Key Takeaways

• Expansion in the U.S. and Asia, especially in premium goat milk-based formulas, drives revenue growth, margin improvement, and greater market presence.
  
• Operational efficiencies and targeted emerging market strategies reduce geographic risk, enhance profitability, and support sustained top-line growth.
  
• Heavy dependence on key export markets, regulatory uncertainties, and intensifying competition threaten sustained growth, margin stability, and the company's profitability outlook.

Catalysts

Manufactures and sell various infant nutrition and wellbeing products in Australia, China, the United States, and internationally.

• The premium natural and organic infant formula segment, especially goat milk-based products, continues to experience robust demand globally-particularly in the U.S. and Asia-driven by rising middle-class incomes and a sustained global shift toward healthy and clean-label nutrition, which supports both revenue growth and improved gross margins as Bubs expands within these segments.
  
• The significant expansion in the U.S. market, where Bubs is now the #1 goat formula on Amazon and has secured shelf presence in over 5,700 stores, positions the company to benefit from increased consumption and premium pricing as U.S. consumers seek higher-quality, specialty formula-a positive catalyst for revenue and margin expansion as market penetration accelerates.
  
• Recent permanent market access applications to the U.S. FDA, supported by a successful and industry-leading infant growth study, provide potential for longer-term regulatory certainty and access to the lucrative U.S. formula market, de-risking future sales and enabling further earnings growth.
  
• Bubs is capitalizing on operational leverage-through enhanced supply chain efficiency, ongoing cost containment, and rationalized product portfolios-which should support sustained gross margin improvement (targeting 40–45%) and deliver increasing EBITDA margins as scale is achieved across core international markets.
  
• The company's targeted expansion into high-growth emerging Asian markets-backed by strong partnerships in Vietnam, Japan, and other ASEAN countries with favorable demographics and rising infant nutrition spending-offers incremental volume upside, diversifying revenue sources and reducing geographic risk, ultimately supporting top-line growth and margin resilience.

Bubs Australia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bubs Australia's revenue will grow by 16.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.4% today to 5.3% in 3 years time.
• Analysts expect earnings to reach A$8.6 million (and earnings per share of A$0.01) by about September 2028, up from A$5.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$11.4 million in earnings, and the most bearish expecting A$5.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.1x on those 2028 earnings, down from 26.6x today. This future PE is greater than the current PE for the AU Food industry at 14.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.48%, as per the Simply Wall St company report.

Bubs Australia Future Earnings Per Share Growth

Risks

• Bubs Australia's high reliance on the U.S. and China markets (together over 70% of group revenue) exposes the company to regulatory risk, changing trade policies (e.g., new tariffs, export requirements), and heightened geopolitical tensions, which could disrupt distribution and negatively impact both revenue growth and net margins.
  
• Inventory levels are at a cyclical low and will require significant rebuilds over the next year to meet increased demand, particularly in the U.S.; this may lead to higher operating costs from air freight and increased working capital requirements, potentially resulting in lower operating cash flow and reduced near-term profitability.
  
• While the U.S. market currently contributes significant growth and high margins, Bubs is awaiting FDA permanent approval for its new infant formula formulations-delays, additional regulatory requirements, or a negative decision could impede expansion and materially affect future revenue growth and gross margins.
  
• Long-term category growth could be threatened by declining birth rates in key developed and emerging markets, which would shrink the overall infant formula market and challenge Bubs' ability to sustain revenue and volume growth.
  
• Ongoing margin pressure from increased marketing investment in the U.S., potential adverse movement in tariffs, and the need for promotional/trade spending to defend or grow market share-combined with exposure to larger competitors and possible category commodification-could erode gross and net margins, outweighing top-line gains.

Valuation

• The analysts have a consensus price target of A$0.192 for Bubs Australia based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$161.9 million, earnings will come to A$8.6 million, and it would be trading on a PE ratio of 24.1x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of A$0.16, the analyst price target of A$0.19 is 13.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.