This article has been written by a special guest Ramiz Shakil and edited by Andy Phung

The long and short of it

The Covid-19 pandemic sent the world reeling in 2020, and aside from the apparent impact it would have on our lives, the aftershocks and secondary effects are also rearing their heads into view.

These effects include rampant inflation and supply shocks from consumer goods distributors such as Walmart to Aldi here in Australia. 

As a result, there was a considerable impact on FMCG goods as only recently have shipping levels returned to pre-pandemic levels.

As expected, industries like Shipping & Tourism, which are more sensitive to market changes, would logically need more time to recover.

As a result, although the demand for goods never stopped, the capacity to service these demands was diminished. 

And for digital assets like cryptocurrency, we're only just getting started 👇

How is this relevant to BUB?

From all the companies to choose from, President Biden chose a small ASX listed company to help cater to that demand. 

The tweet

While this is a great fortune for holders who accumulated before the news release, we must also consider the rest of us who want to get in without getting burnt.  

When jumping into a stock, we must keep our eyes peeled for the following:

⦁ Financials

⦁ Macroeconomics

⦁ Hype (sad but true :c)

⦁ Price history

Whales in the water

Make no mistake; if you’re reading this, you primarily represent the market’s retail side rather than the institutions.

When you strip back all the minutia, the haves and have nots are present in the crypto space and stocks.

Do not forget that everything can be (and often will be) dumped especially minimal cap stocks on the ASX. 

BUB has had three capital raises since 2019. Most of these were private placements to institutions that have more likely than not been in the red at the time of writing.

These offer prices of 0.80c & 0.90c paint a concerning picture. 

If this stock gaps up in the pre-auction at 60c-70c, we may see an initial pump followed by FOMO, a tale as old as time.

One must also be realistic and consider; If the price is indeed going to pump, do we seriously expect holders who have been in the red since 2021 to hold out for their passion for baby formula?

Of course not!

Whales will do what they always do and dump. 

We cannot use the 2020 market boom logic to assume that the sheer volume of buyers will blow the sellers out of the water.

Instead, if the consensus of the markets because of rate hikes and contractionary policy is confirmed, we may be in a bear cycle and must tread lightly and carefully.

Short interest.  

This one is pretty self-explanatory; the shorts themselves aren’t mind-numbingly large; therefore, we needn’t be worried about large institutions placing downward pressure like they would in a GameStop situation.

Selling will most likely happen on a one for one basis with large holders dumping their actual stock rather than choking price through shorts.

The holders

Unlike other stocks where you may see a deep concentration of shares held by a few funds and family offices, there is a relatively generous float of shares which outlines that liquidity and the ability to buy at a price that doesn’t shoot on open is possible. 

The stock itself

Upon consulting the chart, one can see that the red speaks for itself.

This is a relatively unprofitable, unreliable and inconsistent company that has outperformed in the category of shareholder dilution (go figure).

Even looking at the broader consumer market, baby formula stocks generally have a tarnished reputation as less than trustworthy outfits.

You need look no further than the Wattle Health Australia IPO, which has 3 class actions pending against A2 Milk. 

Well done! You’ve almost made it to the conclusion so help us share this research before reading on 👇

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Final thoughts

All of this aside, stocks run on FOMO, as much as we hate to admit it. As a result, some gems are entirely ignored, and Fintech stocks like SPT and OPY are trading at six times fair value. 

Remember, we trade the market for what it is. 

IF you do trade this, ask yourself why you never sell a stock at your target price. 

Why do stocks fall short of that $1 mark and begin dumping at 85-90c.

If the line to sell is long at $1, why would an intelligent investor wait for buyers to take it to $1? 

They would rather forego profit at $1 and be the first to crash a stock at 90c if they’re served first. 

Remember the Greater Fool Theory?

Don’t be that greater fool.

See you again for the next update.

- q

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