MusclePharm Hits A Home Run

| About: MusclePharm Corp. (MSLP)

MusclePharm (OTCQB:MSLP), is doing a phenomenal job at growing revenue and building brand recognition just like Amazon (NASDAQ:AMZN) did back in the early days. I expect this company to become a leader in the $25 billion sports nutrition industry. For those of you who read my January 28th MusclePharm article, when the company was trading at $4.07, congratulations. MusclePharm hit $10.80 last Monday.

Wall Street is beginning to take notice of this company's 400% annual revenue growth rate and overall improvement in fundamentals. Take a look at these revenue numbers:

2010 revenue: $4 million

2011 revenue: $17 million

2012 revenue: $75 million (estimate)

2013 revenue: $110 million (estimate)

How big could MusclePharm get?

As I stated in my previous article, MusclePharm was severely undervalued at $4. The company only has about .3% of the $25 billion sports nutrition market. This is a wide-open field which MusclePharm has barely begun to penetrate.

If the company can capture 2% of the market, or $500 million with an 8% net profit of $40 million, even if we double today's share count to 12 million, that would give us an EPS of $3.33. With a PE of 15, that would give MusclePharm a share price of $50.

Ultimately, if MusclePharm continues growing as it has, a $50 share price may be conservative. In 2008, when Amazon was trading at $38, nobody believed this retailer would see its shares trading at over $250.

MusclePharm is following Amazon's model by focusing on building brand recognition

MusclePharm and Amazon have one important element in common; both companies initially focused on capturing market share and building brand recognition by creating astounding revenue growth. Amazon didn't expect to be profitable for the first four or five years, but instead it focused on building a brand. Only when the company had become a household name did it begin to focus on profitability.

MusclePharm is using exactly the same strategy. This method is proving to be successful, especially when you look at revenue growth and brand awareness.

MusclePharm will balance growth and profitability

Keep in mind that MusclePharm has a lot of control over its rate of growth and level of profitability. Any time the company wants to be more profitable, it simply cuts back on marketing expenses. If the company wants to experience a period of high revenue growth, it increases the marketing expenses and sacrifices some profitability.

MusclePharm is now at an inflection point where profitability is becoming a primary focus. Yes, revenue growth will probably slow down, but when you're growing revenue at over 400%, that's really not an issue.

Upcoming catalysts

  • Now that the share price has burst through the $10 range, analyst coverage should begin. I expect to see a number of buy ratings this year.
  • The company will be reporting Q4 2012 numbers in a week or so, as well as guidance for 2013. I believe the company will project 2013 revenue to be over $100 million, but more importantly, the company should give some indication of profitability for 2013.
  • MusclePharm should be uplisted to NASDAQ sometime in 2013.

Institutions are beginning to buy

Another advantage of the share price rising from $4 to $10 is that institutions are now paying attention. Recent volume indicates that we are beginning to see institutional buying. Also, MusclePharm was mentioned on CNBC this week, so awareness in general is beginning to rise.

What is MusclePharm worth today?

MusclePharm currently has a market capitalization of just $58 million, and I predict annual revenue for 2013 to exceed $100 million. Keep in mind that the average buyout price for nutraceutical companies has been 2.3 times annual revenue. Based on 2013 estimated revenue, a multiple of 2.3 would give MusclePharm a valuation of $230 million and a share price of $38.

MusclePharm could ultimately receive buyout offers for considerably more than 2.3 times annual revenue, as was the case with England-based Reckitt's (OTCPK:RBGPF) recent offer to buy Schiff at about 4.5 times sales, or 28 times EBITDA.

No, I don't think MusclePharm will be bought out imminently, but that could certainly happen later this year. Buyout numbers just give us perspective on the current valuation.

Professional athletes continue to support MusclePharm

Professional athletes love MusclePharm's products. The latest big-league athlete to endorse MusclePharm is Colin Kaepernick from the San Francisco 49ers. He states, "I added MusclePharm supplements to my routine at the beginning of my rookie season in the NFL. MP covers all my needs when it comes to energy, recovery and increased productivity both on and off the field."

But of course the real volume in MusclePharm sales comes from nonprofessional athletes. Here is what customers say about Assault, one of MusclePharm's best selling products.

I noticed an increase in strength, also increased stamina for sprinting exercises. I was faster and more focused. There's no question about whether the product worked for me. For me it was an effective product for an increase in energy, focus, stamina, speed, and strength.

After trying about half a dozen pre-workout powders and energy drinks, I found that Assault works the best for me hands down. The energy is long lasting and clean, no harsh crashes at all which was a welcome change after using some of the more hardcore products like 1mr and jack3d. Focus on Assault was awesome...I found that after 6 weeks of training on it I was not losing any muscle mass but dropping weight, and my lifts were actually INCREASING. Great all round product. I will definitely be getting this on my next order and probably trying some other MP products like Shred Matrix.

I have tried almost every pre-workout supplement on the market....Jack3d, N.O. Xplode, 1MR, SuperPump, Black Powder, Amino Energy, & NaNo Vaper just to name a few, and none compare to the combination of energy, focus and pump that Assault provides.

What's the risk?

The big risk involves the revenue numbers and profitability guidance that the company is about to announce. If the company estimated 2013 revenue to be less than $90 million, investors would be disappointed, and would probably initiate a selloff. Also, if the company were to indicate that it would not achieve profitability in 2013, that would also disappoint the market. I don't anticipate either of these events, but they are definitely within the realm of possibility.


MusclePharm only has 6 million shares outstanding. Its debt has been cleaned up, and management's salaries have been cut. I expect profitability in 2013. In general, the company has undergone a major positive transformation. We should see more positive catalysts this year as the company launches new products and receives endorsements from major league athletes. In my opinion, MusclePharm will continue to hit home runs.

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Disclosure: I am long OTCQB:MSLP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.