The smartest ASX shares to buy if you have $2,000

Tristan Harrison | July 21, 2020 5:45pm | More on: BUB PPH

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If you have $2,000 to invest then I think the two ASX shares in this article are the smartest ones to buy:

Share 1: Pushpay Holdings Ltd (ASX: PPH)

Share 2: Bubs Australia Ltd (ASX: BUB)

I think Bubs is one of the most exciting shares on the ASX due to its international growth plans and improving margins. It has a range of products, with a focus on goat milk.

If a business can successfully expand into Asia or other populous regions, it opens up huge addressable markets for that company.

Bubs is doing a great job of expanding its distribution reach with agreements with international retailers like Alibaba as well as local ones such as Chemist Warehouse, Coles Group Limited (ASX: COL), Woolworths Group Ltd (ASX: WOW)and Baby Bunting Group Ltd (ASX: BBN).

The increased distribution network is leading to exciting revenue growth. In the FY20 third quarter Bubs generated quarterly revenue of $19.7 million, this was growth of 67% compared to the prior corresponding period and 36% on the previous quarter.

There were a few key areas of growth that delivered that impressive growth for the ASX share. Bubs infant formula revenue grew 137%. Chinese revenue increased 104% and ‘other market’ revenue rose almost 20 times – this represented 12% of gross sales and included significant growth into Vietnam. I think the strong growth can continue for at least the medium-term as the Bubs distribution network and brand awareness continues to grow internationally.

As the ASX share gets bigger its gross profit margin gets better. Indeed, its gross margin increased in each of the December 2018, June 2019 and December 2019 results. The December 2019 gross margin was 24% and the Bubs infant formula gross margin was 41%. To me, this says the business can continue to become even more profitable as it grows bigger and more of its sales are infant formula related.

In the update about the quarter to 31 March 2020, the company said that it was cashflow positive. That means it’s now not burning cash in its day to day operations. That’s an important step for a rapidly growing business.