Update: Mannatech Back In The Red, But Tremendously Undervalued

Aug.11.14 | About: Mannatech, Incorporated (MTEX)

Summary

Mannatech reported an unprofitable quarter, but short-term issues should subside and allow the company to return to profitability.

Although this unprofitable quarter is not positive, I still have conviction in Mannatech outperforming in the long-term.

In my previous article, I did not predict the company falling back into unprofitably.

This week, Mannatech (NASDAQ:MTEX) reported second quarter earnings. Although the top line grew, the company fell back into the red, as the timing of expenses was unfavorable. Sales in the second quarter increased 3.4% to $46.3 million, as compared to $44.8 million in the same period a year ago. This revenue growth is accelerating, as its previous quarter improvement was 3.1%. However, the company also reported a net loss of $0.7 million or $0.26 per diluted share.

Although the company became unprofitable again, investors should not panic, as the setback should prove to be temporary. CEO Robert Sinnott discussed the transitory nature of the setback during the conference call:

"Our operating expenses remain largely in line with our budget, but we did have some timing issues that increased expenses and resulted in a loss for the quarter. We regret this situation, but believe that it'll be a temporary situation as we improve our operational efficiency."

Uneven sales growth in its countries of operation and shifts in associate buying patterns hurt its supply chain efficiency and global tax situation. The company is implementing initiatives to better project future demand, decrease lead times, have a tighter manufacturing control, and mitigate shipping costs.

In my previous article, "Mannatech: Tremendously Undervalued And Poised For Substantial Appreciation," I opined that MTEX provided an asymmetric risk/reward opportunity at its trading level. Today, with a market capitalization of just $32 million, and quarterly sales that handily dwarf that number, the investment opportunity still exists. Management should be able to staunch losses, with minor supply chain tweaks, which will propel MTEX to new heights.

Disclosure: The author is long MTEX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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