TPS Trade Alert – May 22, 2014
May 22, 2014
Recommendation:
Buy LifeVantage (NASDAQ: LFVN) up to $1.60 per share.
Trade Rationale:
Have you ever heard of a nutraceutical? Well, you may not have heard the term, but you’ve mostly liked used a nutraceutical recently – or you may even use them daily.
The word nutraceutical is simply a combination of the words nutrition and pharmaceutical. The term encompasses everything from isolated nutrients and dietary supplements to herbal products and specific diet foods.
Taken as a whole, the nutraceutical market is enormous. Some predict the market will reach $250 billion worldwide by 2018. Given how often you see dietary supplements and specialty foods on the shelves, that number doesn’t seem unrealistic.
One of the main benefits of nutraceuticals is they’re basically types of food and vitamins, so they aren’t regulated like drugs. In other words, they don’t have to go through the long and grueling process of FDA drug approval.
Nevertheless, despite the non-drug status of nutraceuticals, they can have significant and lasting impact on your health.
Recently, we came across a nutraceutical company with highly innovative products with industry-changing potential.
That company is LifeVantage (NASDAQ: LFVN).
LFVN develops nutraceutical dietary supplements and skin care products. Its primary product is Protandim, a scientifically-validated dietary supplement used to reduce age-related symptoms on the cellular level. The company also offers TrueScience, an anti-aging skin care product and Canine Health, pet supplement meant to reduce oxidative stress in dogs.
LifeVantage sells its products through a network of independent distributors and preferred customers. The company has found that its distribution methods help it stand out from other nutraceutical products, which often sit unnoticed on shelves of retail stores.
While there are several reasons why LFVN makes an attractive investment, two really stand out to us.
First off, unlike many other micro-caps in this space, the company isn’t just relying on a single product. Yes, Protandim is their most well known product and benefits from the positive results it’s achieved in published scientific studies.
However the company also launched a full regimen of TrueScience skin care products. And, LFVN recently acquired a line of sports nutrition products from Wicked Fast Sports Nutrition.
But it’s not just about product diversity…
More importantly, LFVN has the financial performance to support its long-term potential. Basically, the company’s already growing and making money.
Annual revenues are over $200 million, with $55 million generated in the most recent quarter. That’s a 9% year-over-year climb. The gains were driven by a 30% increase in sales in Japan and Hong Kong.
Operating margin for the quarter was $4.5 million, up from $3.9 million a year ago. The company is able to post positive operating income despite its rapid growth due to its impressive 85% gross margin.
LFVN has $36 million in cash compared to $45 million in debt. Management is using the robust cash position to pay down debt and repurchase shares – a good sign for shareholders. Currents assets are also a healthy 2.2x current liabilities.
Despite a strong product portfolio and accelerating growth, LFVN is trading at bargain-basement prices.
The shares are priced by the market at just 9.3x projected earning and 0.69x sales. That’s extremely cheap for a company growing sales and consistently showing positive operating income.
Let’s grab shares in LFVN while the stock’s trading at such a dirt cheap valuation.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | LifeVantage |
| Ticker: | LFVN |
| Recent Price: | $1.39 |
| Market Cap: | $144.1 million |
| Avg. Daily Volume: | 473,796 shares |
Chart:
Category: TPS Trade Alert
