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The
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Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
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| Undervalued
Investing Idea: Nutraceutical International (NUTR) |
Published: March 16, 2006
Nutraceutical International
(NUTR) is a leading manufacturer of vitamins, minerals, and other
nutritional supplements. Through brand names such as Au Naturel, Solaray,
Action Labs, and Natural Balance, the company distributes more than
3,000 products to specialty retailers around the world. Additionally,
the firm publishes a line of natural health books under the Woodland
Publishing name.
Nutraceutical is one of those unique companies that possess both growth
and value attributes. The stock was a highflier in 2001 and 2002,
posting back-to-back triple-digit percentage returns. However, the
shares have cooled off in recent years, and they are currently trading
about 50% below their five-year peak of $27.62. Despite the pullback,
shares of NUTR have managed to deliver impressive average annual gains
of +41.7% over the past five years.
Even though the stock has rallied in recent years, NUTR is still trading
at a sharp discount to its industry rivals:
| |
NUTR |
Industry
Avg. |
| Trailing
P/E |
12.7 |
39.7 |
| Price/Sales |
1.1 |
10.3 |
| Price/Book |
2.7 |
10.9 |
| Price/Free
Cash Flow |
9.5 |
32.6 |
Over the last several years,
the company has seen its revenues rise at a healthy double-digit annual
clip. Furthermore, gross margins have held steady, edging up from 49.6%
in 2001 to 51.6% today -- despite increased competition. Unfortunately,
bottom-line growth has been a little tougher to come by over that
period. The firm has jumped out to a fast start in fiscal 2006, though,
with first-quarter earnings climbing +25% to $0.30 per share.
Over the last few years, management has done an excellent job of
maintaining a solid balance sheet, and dilution has been almost
non-existent. There are fewer shares outstanding today (11 million) than
there were in 2000, and nearly three-fourths are held by institutional
owners. Fidelity, Royce, and American Century all have a major stake in
the company.
I am also encouraged by the firm's improved asset turnover rate, which
has climbed from 1.0 to 1.5 over the past five years. The latest reading
is double the industry average of 0.75, and it tells me that management
is doing a better job of efficiently deploying the company's assets.
Over the past year, the company
has generated more than $20 million of operating cash flow. Management
has judiciously used that money to buy property and equipment ($6.8
million), complete several key acquisitions ($5.8 million), pay down
debt ($4.5 million) and fund a share repurchase program ($3.1 million.)
While growth rates in the nutritional supplement market have been soft,
Nutraceutical has relied heavily on acquisitions to spur growth. Going
forward, I expect the firm to continue its buying spree. However,
management is also exploring ways to pick up market share and improve
organic growth. At the same time, the consolidation of manufacturing
operations should help cut costs and improve profitability.
As always, I wouldn't advise a concentrated position in shares of any
single firm. However, those looking for ways to energize a core value
portfolio might find this vitamin maker is just what the doctor ordered.
-----------------------------
Important Note: The above article was merely a small excerpt
from a recent issue we sent to subscribers of our premium value
investing service -- Half-Priced
Stocks. The mission of Half-Priced
Stocks is to help our readers identify securities that are
trading at the steepest discount to their intrinsic net worth. In some
cases this discount can reach up to 50% or more, giving savvy value
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Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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