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Back in July of 2012, I highlighted a small beverage company that had the potential to be bought out with a strong base of healthy drink brands. That company, Leading Brands (NASDAQ:LBIX), saw shares increase 30% last Thursday on the back of a strong first quarter earnings report.

Leading Brands is the only fully integrated healthy beverage company in North America. The company sells products under the following brands: True Blue, Pure Blue, True Blue Lite and Happy Water. True Blue is the only national blueberry brand in North America. In February, Leading Brands launched its new Happy Water brand. The water is 100% pure natural spring and lithia water found in the Canadian Rocky Mountains.

In the first quarter, Leading Brands reported earnings per share of $0.24, a strong increase from the $0.13 reported a year earlier. Gross revenue increased 3.7% to $5.1 million. Revenue was helped by the company's new Happy Water brand.

In the first quarter, Leading Brands saw its margin improve to 47.0%. This was a significant increase from the 40.2% reported a year ago. It is also an improvement from 37.2%, the margins the company ended fiscal 2012 with. The improvement has been helped by the discontinuation of low margin brands as the company focuses on high growth, high margin items going forward.

One of the most important things coming out of the first quarter was Leading Brands' cash position. The company ended the quarter with $1.65 million in cash, representing $0.56 per share. Leading Brands also has zero long term debt on its books.

The other exciting news going forward is Leading Brands' continued share buybacks. In the first quarter, the company bought 18,996 shares at an average price of $4.56. The company has $730,000 remaining on its current share repurchase program. The board of directors continues to believe shares are undervalued.

This small under-followed and undervalued company represents a great long-term growth opportunity. The company remains a buyout candidate with a strong brand portfolio and no debt. The company is a great growth stock with improving sales and margins. This is a small under $5 stock to put into the speculative part of your portfolio and leave alone for a year.

Source: Leading Brands: Strong Growth Ahead