Should you buy the beaten down shares of Bubs and Kogan?

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Although the All Ordinaries index has started 2020 strongly and is trading in sight of its record high, not all shares have fared so well.

Two shares that have been sold off in 2020 are listed below. Are they in the buy zone?

Bubs Australia Ltd (ASX: BUB)

The Bubs share price has fallen 28% so far in 2020. This leaves the infant formula and baby food company’s shares trading far closer to their 52-week low than their 52-week high. Investors have been selling the company’s shares after its second quarter and half year update disappointed the market.

Although Bubs grew its cash receipts strongly to $26 million for the half, it posted an operating cash outflow of $16.6 million. And while it has a cash balance of $39.1 million, investors appear concerned that it will burn through this cash in the coming quarters and require yet another capital raising. Whilst I believe Bubs has a lot of promise, I think it may be some time before it reaches profitability. In light of this, I’m holding off an investment for the time being.

Kogan.com Ltd (ASX: KGN)

The Kogan share price is down over 36% since the start of the year. The catalyst for this share price weakness was a surprisingly disappointing first half update in January. For the first half of FY 2020, Kogan expects to report gross sales and gross profit growth of just 16% and 9%, respectively, over the prior corresponding period.

This was a sharp slowdown on the growth it achieved in the first quarter and appears to have been driven by a material decline in Third-Party Brands sales. Whilst I have been very disappointed with its performance, I remain positive on its long term trajectory. This could make it worth considering a patient and long term investment in the ecommerce company’s shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO and Kogan.com ltd. 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.

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