Nature's Sunshine: Mixed Quarter, 24% Net Cash Of Current Market Capital, Trading At 6.1x P/E

Summary

  • +7.9% YoY growth in net sales driven by +29% YoY growth in Asia region.
  • 24% net cash of current market capital.
  • The company has $30 million remaining in share repurchase program.
  • We think that the stock will break past its 10-year highs.
  • The company is trading at a P/E of only 6.1x [cash adjusted], with 86% potential upside.

Vitamin Supplements

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Mixed 1Q22 Results

Nature's Sunshine Products (NASDAQ:NATR) reported mixed 1Q results for the quarter ended in December, which managed to surpass Street expectations. The company announced quarterly sales of $110.50 million, which were 1% higher than the analyst consensus expectation of $109.90 million. This represents an increase of 7.9% above revenues of $102.42 million during the same period previous year. The company reported quarterly losses of $(0.03) per share. This is a 114.29% decrease over earnings of $0.21 per share from the same period last year. Gross margin in the first quarter decreased by 450 basis points as compared to 73.7% in the year-ago quarter. Changes in valuing reserves as a result of the crisis between Russia and Ukraine, changes in market mix, and increases in both production and transportation costs are all contributing to the decline in gross margin. Adjusted EBITDA stands at $8.2 million which is a decrease of 31% as compared to $11.6 million in the year-ago quarter. This decrease was driven primarily by the aforementioned decrease in gross margins and increase in selling, general and administrative expenses.

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Investor Presentation

Asia led the way for net sales growth with 29% growth YoY when compared to last quarter. This growth is offset by Europe, North America, Latin America and Other regions. Europe sales were down by -1.9% YoY, North America sales were down by -4.7% YoY, and Latin America and Other were down by -1.2% YoY.

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Press Release

Commenting on the results, Terrence Moorehead, CEO of Nature’s Sunshine said:

In the first quarter we delivered strong top-line growth despite headwinds from COVID-19, intensifying global supply chain issues, rampant inflation and the devastating war in Ukraine. As expected, productivity was negatively impacted in the quarter by the confluence of externally-driven headwinds, resulting in $4.2 million of inventory-related impairment charges. Sourcing challenges also inhibited our ability to meet product demand and drive growth in our North American segment.

With the mixed 1Q22, we have maintained our EPS estimate for 2022 and 2023 of $1.56 and $1.70 respectively. The company is standing on a net cash position of 21% of the current market cap or $3.29 net cash per share as of March 2022. This cash puts the company in a solid position to continue to return capital to its investors. The company is undervalued at a P/E of 11.1x for the FY01/22 [still much below the S&P 500 and Russell 2000 indices]. Based on our estimates, we see a P/E multiple of 10.1x and 9.2x for FY22e and FY23e.

Price Target & Valuation

We maintain our $25.10 price target that reaffirms our thesis that the stock has potential upside of 60% given strong fundamentals and quarterly growth. The company is trading at an ex-cash P/E [market cap minus net cash, divided by EPS excluding interest income after tax] of around 7.9x for the current FY2022e. So, we multiply 13.9x times $1.56 to arrive at $21.81, and then we add back net cash of $3.29. We have arrived at the P/E estimate by looking at the company's historical data and the P/E of the S&P 500 and the Russell 2000.

We think that the stock will break past its 10-year highs. This is because of growth in the health and wellness products industry, and more specifically strong growth seen in the Asia economies for the quarter. The Asia economies are a definite macro catalyst given secular trends and rapid growth in powerhouses such as China, Japan, and South Korea.

21% net cash of current market capital

The company is standing on a net cash position of 21% of the current market cap or $3.29 net cash per share as of March 2022. In the last quarter, net cash utilised in operating activities was $7.9 million, up from $2.7 million the year before. The quarter's capital expenditures were $1.5 million, up from $1.0 million the previous quarter. The company had $66.5 million in cash and cash equivalents and $2.1 million in debt as of March 31, 2022.

Stock Buyback

The company repurchased $8 million worth shares at an average cost of $17.74 per share in Q1 2022. This decision reflects the company's commitment to increasing shareholder value as well as its confidence in the future business outlook. The company has $30 million remaining in the share repurchase program.

Conclusion

Nature's Sunshine Products had a mixed quarter. The company had strong growth in Asia, which is always a good sign. On top of these strong results, the company has 21% net cash. We maintain our $25.10 price target that reaffirms our thesis that the stock has potential upside of 60% given strong fundamentals and quarterly growth. We think that the stock will break past its 10-year highs.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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