MusclePharm’s Products Deliver Strong Value For Investors

by Morgan Smith
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Submitted by Morgan Smith as part of our contributors program.

Throughout the years, most people have sought to “get in shape” by vowing to eat right and exercise. Yet, when reality hits, many realize that they may need a bit of additional help – which is one reason why the nutritional supplement market has been growing at such a rapid pace. In this article, I will discuss why MusclePharm (MSLPD) is poised for substantial growth due to its widely accepted products in the sports and bodybuilding communities, its steadily increasing revenues, and its recent cost cutting measures.

Over the past several years, MusclePharm has increased its revenues exponentially, from $1 million in 2009 to over $51 million as of the third quarter of 2012 – and the company could top $100 million in 2013.

The company’s products have been heavily endorsed by top athletes such as Michael Vick – who has been verified as a daily user of the product – as well as by entire teams like the Cincinnati Reds. In addition, MusclePharm has become the official nutrition company of the UFC (Ultimate Fighting Championship).

On top of the many MusclePharm product endorsements – which have helped to spread the word about MusclePharm – the company’s products are considered to be safe for use. All of MusclePharm’s products have met the good manufacturing practices that have been set by the National Nutrition Food Association, and they are manufactured in labs that have been registered with the FDA.

In 2011, the company’s products were nominated in 18 different product categories by Bodybuilding.com, and the company won awards in several such categories, including breakout brand of the year.

Along with amazing sales rates of its supplements, MusclePharm has been busy cleaning up some of its derivative liabilities – going from over $7 million in early 2012 to almost 0 – as well as actively working towards capital restructuring and reducing company debt.

Recently, MusclePharm also announced a 1-for-850 reverse split on its issued and common stock shares, as well as a decrease in the number of the company’s authorized common shares. Effectively this means that every 850 shares of issued and outstanding MusclePharm common stock will be converted into one share of common. All of a shareholder’s fractional shares will be rounded up to the nearest whole share. Overall, the split equates to reducing the number of outstanding common shares from approximately 2.36 billion to approximately 2.9 million shares.

According to President and CEO, Brad Pyatt, the company elected the reverse split in order to help the firm in attaining a higher trading price for its shares. This would, in turn, help MusclePharm to seek a listing of the company’s common shares in “a more established trading market – including a stock exchange such as the NASDAQ.

Pyatt went on to say that the company’s Board felt that the split would better position the firm to offer more liquidity, as well as more efficient trading volume. This could essentially offer share holders the chance for greater return.

Following the reverse stock split, each of MusclePharm’s shareholders will still maintain their relative proportional ownership interest – and likewise, the rights and privileges of the stockholders will also remain unaffected, as well the authorized shares of MusclePharm’s preferred stock. There will be proportional adjustments made to the company’s stock options, warrants, and equity compensation plans.

Moving MusclePharm Products Into the Mainstream

Getting MusclePharm into the hands of fitness-conscious consumers has been made easier over the past few years – especially given the tremendous growth of online sales outlets. In addition to websites such as BodyBuilding.com, MusclePharm products can also be purchased through the mega online retailer Amazon (AMZN). Much more than just “the world’s biggest online bookstore,” Amazon’ P/E ratio stands at an astounding 3,071. Shares of this online retailer are estimated to increase by roughly 7% over the next 12 months.

Due to many of its customers hearing about MusclePharm product via word-of-mouth, the company has very minimal expense in terms of advertising. Some of the more obvious “brick and mortar” locations in which to find MusclePharm products include GNC (GNC) and Vitamin Shoppe (VSI) retail stores.

GNC, owner of over 7,500 retail locations in 50 countries, has posted impressive third quarter 2012 earnings that are in excess of 15%, along with a 33% increase in profits over the same quarter of 2011. GNC’s management is expecting 2012 annual revenues to be up 18% over its 2011 figures, equating to a roughly 50% increase in company profits.

These positive numbers for GNC are due in large part to the company’s “downsizing” – or simplifying – of its stores’ inventory, offering only products that GNC feels offer their customers a real value. GNC’s earnings per share stand at just shy of 2.2, with a dividend yield of 1.27%.

Vitamin Shoppe carries MusclePharm products in 560 offline retail locations. With third quarter 2012 sales up over 14% and income growth up over 53% from a year prior, the company attained a 35% increase in earnings – equating to $0.54 per share – for this same time frame. Recently, Vitamin Shoppe announced that it is seeking to acquire Super Supplements – which would greatly expand the company’s presence in the Pacific Northwest.

The Bottom Line

In the sports community, MusclePharm has achieved wide recognition and acceptance. The company has done a great job of moving product off the shelves – without a great deal of advertising cost. Based on MusclePharm’s vastly increased revenue – with the potential to hit the $100 million mark in 2013 – along with its decreased debt, a post-reverse-split share price of more than $4, and a possible NASDAQ listing, I’d say that this company is likely to continue on its path of growth, rewarding its shareholders along the way.

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