Advanced Nutraceuticals: Fundamentals Gaining Strength (ANII, AOB, USNA, MTEX)

The Microcap Speculator submits: When I come across an interesting stock in the nutraceutical industry, I pay attention. Through the years, a number of nutraceutical companies have been very kind to microcap investors. Mannatech (ticker: MTEX) and Usana (ticker: USNA) grew so much that they are no longer microcaps. Many others, like American Oriental Bioengineering (ticker: AOB), grew several-fold.

The latest nutraceutical stock to catch my eye is Advanced Nutraceuticals (ticker: ANII).

Advanced Nutraceuticals operates through its sole subsidiary, Bactolac, which is a private label contract manufacturer of vitamins and supplements. Bactolac formulates, manufactures, coats and packages encapsulated and compressed tablets, powder blended vitamins and related nutritional supplements. Today, Bactolac received good manufacturing practices certification from the leading industry organization, the National Nutritional Foods Association -- something the company did not expect to receive until early 2007.

This stock was profiled by Knobias in November 2005, when it was trading around $4. Now the shares are trading around 25% cheaper, pressured by a distribution of over 420,000 shares by its former largest shareholder, Cambridge Holdings. I think ANII is attractive here.

For the quarter ending December 31, 2005, ANII reported earnings of $.09/share, versus $.08 in the prior year quarter, and revenues of $5,708,000, versus $4,491,507 in the prior year quarter. The company has a few million dollars in net debt. However, with only 4.6M shares outstanding, ANII still trades at a very reasonable enterprise value to sales ratio of 0.72.

I see three potential catalysts for significant upside in ANII shares:

1. Pressure of the Cambridge Holdings distribution should soon abate. Based on the daily share volume, it is likely that most investors who received ANII shares from Cambridge and wanted to sell those shares have already sold.
2. Rapidly increasing revenues (up 27.1% quarter-over-quarter) could lever earnings considerably in the coming quarters
3. ANII may seek listing on Amex or Nasdaq

DISCLOSURE: I am long ANII.OB. Not a recommendation to buy or sell any security. For informational and educational purposes only.

ANII 1-Yr Price Performance: