MusclePharm: 5 Reasons Why Shares Remain Undervalued For Long-Term Investors

| About: MusclePharm Corp. (MSLP)


New Deal with Tiger Woods could Accelerate Launch of Dropz energy drink brand.

FitMiss continues to see retail expansion and gains valuable endorsee in Jen Setler.

Company trades at less than 1x sales and 11x expected forward earnings per share.

MusclePharm (OTCQB:MSLP) is a small cap company with big aspirations. The company sells its product in more than 110 countries through 35,000 retail outlets and more than 100 online retailers. MusclePharm operates in the growing sports supplement business, which has seen annual growth of 6 to 10%. With expected market growth of 6 to 9% and several key catalysts, the stock looks to be a long term buy.

Tiger Woods Deal

The big story for MusclePharm was the company's sponsorship deal with Tiger Woods, one of the biggest names in all of sports. MusclePharm is now the exclusive sponsor of Tiger's golf bag. The company will also use Woods in advertisements and commercials. The fine print says Woods will be paid $5 million in MusclePharm shares and also receive royalties on branded products.

Tiger Woods now joins a small list of MusclePharm endorsed athletes. On that list is Laron Landry, Colin Kaepernick, Chady Dunmore, Eric Decker, and Cory Gregory. Those names aren't all instantly recognizable, but is the start of a push into professional sports through endorsements. Along with Tiger Woods, the other big name is Arnold Schwarenegger. MusclePharm has a whole line of products sold under the Arnold brand. MusclePharm also has deals with the UFC and USA Wrestling.

FitMiss: "Strong is the New Sexy"

Along with the focus on male workout products, MusclePharm also has its FitMiss line that continues to see strong entry in retail and a growing market. FitMiss was launched in 2013 and has 8 products on the market with more coming later this year. The company recently signed an endorsement deal with Jen Selter. Selter is a fitness model and motivator. She will no doubt be a driving face behind the FitMiss brand. While Selter may not be a super famous name to people reading this, she has a huge presence on social media and the power to drive sales for brands. Selter has 2.1 million Facebook followers, 579,000 Twitter followers, and over 3.6 million Instagram followers. According to AdRants, she has also been approached by Nike, Lululemon, and New Balance.


In 2013, MusclePharm filed a trademark for the "Dropz" brand. This item has been talked about a lot, but with Tiger's endorsement, the brand could soon be a huge driving force for MusclePharm. As mentioned above, Woods will receive royalties on branded products. Could he in fact be the name behind Dropz?

During the first quarter earnings call, MusclePharm said it would launch Dropz in late third quarter or early fourth quarter. The product is an energy product through a partnership with ChromaDexx. Dropz are "crystalized caffeine that allows you to get a safer way of getting the energy". The company says the product is safe and also has no crash that normal energy drinks have. During the first earnings call, the company hinted at wanting to have one athlete to focus solely on promotion of Dropz, with other endorsees also promoting the product. Tiger could in fact be that name since he fits this, "I would say you could look forward to something in the next 90 days we will be announcing who that partner will be with MusclePharm to address the Dropz line.

New GNC Deal

On Tuesday, MusclePharm announced an extended deal with GNC (NYSE:GNC). The new deal will give MusclePharm a dedicated wall inside more than 4000 corporate owned GNC stores in the United States. This new promotional effort will begin in the third quarter and is also expected to strongly promote the company's FitMiss line. During its first quarter earnings call, MusclePharm hinted at further expansion by saying GNC represented less than 5% of total company sales.

Strong Financials and Growing International Sales

In the recent first quarter, total sales grew 123% to $50.2 million. Earnings per share came in at a positive $0.23, as the company approaches its first year of profitability. The stellar revenue increase was led by international sales of $17.2 million, which was an increase of 176% from the prior year. International sales made up 34.3% of first quarter sales, up from 27.7% in the first quarter of last year.

International sales continue to be a focus for MusclePharm and a reason for further bullishness. Some of the highlights pointed out in the first quarter for international sales were:

· Furthered international expansion through strategic distributor/retailer model and built to order new product introductions in Australia, Brazil, and European Union.

· Expanded relationship with Costco to now include four countries: Australia, Canada, South Korea, and United States.

MusclePharm is guiding for full year revenue in a range of $165 to $175 million. The company sees a profit of $0.41 to $0.51 per share for the full fiscal year. Yahoo Finance lists consensus revenue estimates at $175.2 million, representing full year growth of 58%. In fiscal 2015, the estimate rises to $201.8 million, year over year growth of 15.2%. Earnings per share are estimated at $0.15 and $0.97 for the current and next fiscal years respectively. One of the keys for growing profits is incredible rising profit margins. Back in 2011, profit margins were only 13.8%. That number rose to 21.4% in 2012, 29.9% in 2012, and is expected to hit 33% in fiscal 2014.


Shares of MusclePharm have traded between $6.16 and $13.11 over the last fifty two weeks. Shares now trade close to the $11 range and have seen a strong rise over the last year. The company still sports a relatively thin market capitalization of $126 million, which represents a price to sales ratio of 0.7 from the mid-range $170 million expected this fiscal year. A price of $11 also gives share a price to earnings of 24 based on this fiscal year and 11 based on next year's estimates of $0.97 per fiscal year.

MusclePharm does come with risks as it competes as a supplemental item that can easily be cut out of diets and budgets. The company also faces competition from other companies. MusclePharm is also becoming reliant on getting shelf space in retail, although the new GNC deal is diversifying its reliance on any single company.

The mentioned catalysts above along with the future listing on a national exchange are all ways for shares to continue their breakout. This is a long term play stock that should be in portfolios of patient investors.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in MSLP over the next 72 hours. 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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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