Submitted by David Gould through our contributor tool
Nu Vitality (NUVI) is one of my top picks for 2012 given its proven direct sales strategy and the minimal penetration that is needed to send valuation soaring. Being led by a stellar management team that has created hundred of millions of dollars within three years, Nu Vitality has the intellectual capital that will soon catch the attention of Wall Street. The firm’s CEO, Neil Kleinman, performed origination and underwriting for Laurus Capital Management and grew the asset base by around 10,000% to more than $2B. His work earned Laurus the Best Niche Strategy/Innovative Category in 2004 and then the Absolute Returns Alternative Investment Manager of the Year in 2006. Fortunately, investors now have the opportunity to benefit from Kleinman’s solid track record.
As I have stated earlier here, if Nu Vitality is able to just gain 0.04% of the $60B weight loss and diet market in the US while trading at average peer levels, its three recently launched products (see here) are worth at least $30.2M. Being that the company is expanding into emerging markets and has an e-commerce platform to target key geographies, it also provides an attractive hedge against domestic stagnation. With diversification in treatments for a variety of conditions ranging from cholesterol to dementia to Alzheimer’s and more, the company has further done well in mitigating its risk profile.
Avon Products (AVP) and Herbalife (HLF) have both created multi-billion dollar brands through leveraging the same strategy that Nu Vitality is now implementing. This strategy gives distributors a direct economic interest in driving ever-increasing volumes. It should consequentially be of no surprise that Herbalife is rated a very “strong buy” on the Street and has a price target above $70. With much less information being disclosed on Nu Vitality, however, the free market has yet to fully appreciate its value.
Herbalife has a retention rate of around 70% for nutrition club supervisors. A 1% club growth would yield 700 more – not unlikely given how fast the company has proliferated in China, Brazil, and India. Avon similarly has strong upside given growth expectations. Modeling a 2.7% CAGR for EPS over the next three years and then discounting backwards at a WACC of 9% suggests that the company is worth $25.05 per share. The growth prospects at Nu Vitality are even more sustainable given that the firm targets markets with underlying inelastic demand at attractive price points.
Recent reports have speculated that the company will attain 40K customers and $15M worth of sales by 2012′s end. Assuming that the company realizes profit margins and an EPS CAGR equivalent to that of Herbalife, Nu Vitality has at least 50% upside. Modeling a CAGR of 17.7% for EPS over the next three years and then discounting backwards by a WACC of 9% yields this upside result. One should note, however, that since Nu Vitality is a smaller company, it has a lower earnings base to grow off and thus could be even more undervalued than this estimate suggests. In any event, with a target market associated with historically low betas, Nu Vitality’s upside is one of the safest among small-cap companies.
DISCLOSURE: The distributor of this research report, Gould Partners, is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence as information contained within this report has been derived by public sources and cannot be guaranteed by us to be fully accurate. We are a consultant to a third-party EAG, representing NUVI and have received one thousand dollars for independent research. Always discuss investments with a licensed professional before making any financial decision. Statements made herein are often “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.