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Overview

I last covered the biggest upcoming supplement company MusclePharm (OTCQB:MSLP) on December 12, 2012 - and the stock closed at $4.77/share that day. A few weeks later, a major purchase of preferred shares of MSLP by Dr. Phillip Frost sent the stock soaring. MSLP closed last Friday at $6.30/share, implying that investors who bought after the last article made at least 30% gains in less than two months.

I've even gotten a few emails from some very happy investors who bought into the story at the outset.

Phillip Frost - The "Smart" Money?

Investors who haven't been introduced to MusclePharm's business story can review my article from December, which outlined the history of the company and pointed out some of its competitive advantages over supplement providers like GNC.

Now that a major outside investor has come into the picture, I think it'd be good to look at who Dr. Frost is and why we should consider him representative of "the smart money".

Dr. Frost started his career as a company-builder in 1972 with the acquisition of Key Pharmaceuticals, which was sold in 1986 to Schering-Plough in 1986 for $600 million. He then took the lead of Ivax, which was sold in 2006 to Teva (NYSE:TEVA) for $7.4 billion (where he later went one to become the chairman.) More details are mentioned in a recent Seeking Alpha article about MusclePharm by John Ford.

Basically, I would argue that Phillip Frost is definitely smart money. This also has a chance of leading to more institutional interest in MusclePharm, which would be extremely good for the company (and shareholders) going forward as it would reduce the financial "growing pains" that MSLP-like companies must go through early on.

Investing In Top-Line Growth

Without going too much into detail, I want to point out that the main reason to invest in MSLP is because of its top-line growth. Here is an excerpt from my previous article to point out just how impressive it is:

By 2011, MusclePharm reported $17 million in sales revenue. This equates to a 2,125% increase in revenue over three years, or an annually compounded growth rate of 597% top-line growth.

MusclePharm's expenses are still too high to justify a revenue-based valuation of the company, but the company should find plenty of ways to fix its business model in the next few years. In the near term this would specifically include reductions in management compensation, and the elimination of third party entities in the supply chain.

MusclePharm In 2013

This should certainly be a big year for Musclepharm. They seem to be growing their presence in the institutional investing world, while finding ways to improve margins. The key to MSLP's growth story, the sales growth, will remain central to my perception of the stock's inherent undervaluation (at least to me).

I don't like setting price targets, but I think MSLP could be north of $10/share by the end of the year if the top-line growth continues and if the company makes even a little bit of progression on its profitability.

Having said that, there are risks. MSLP volatile, risky, and operates in a very competitive environment (although, which environments aren't competitive these days?). Investors who are interested in MSLP should perform thorough due diligence on the company to see whether or not the company fits their risk profile.

On top of that, I feel that MusclePharm is the kind of growth story that an investor should personally believe in, and follow if they want to get involved.

Source: Revisiting MusclePharm