Rapid cash

Nature’s Sunshine: Mixed quarter, 24% net cash of market cap, trading at 6.1 x P/E (NATR)

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Mixed 1Q22 results

Products of nature’s sunshine (NASDAQ: NATR) reported mixed first-quarter results for the quarter ended December, which managed to exceed Street’s expectations. The company reported quarterly sales of $110.50 million, 1% higher than the analyst consensus expectation of $109.90 million. This represents a 7.9% increase over revenues of $102.42 million during the same period the previous year. The company reported quarterly losses of ($0.03) per share. This is down 114.29% from earnings of $0.21 per share over the same period last year. Gross margin in the first quarter decreased 450 basis points from 73.7% in the prior year quarter. The change in the valuation of reserves following the crisis between Russia and Ukraine, the change in the market mix and the increase in production and transport costs contributed to the decline in the gross margin. Adjusted EBITDA was $8.2 million, down 31% from $11.6 million in the prior year quarter. This decrease is mainly explained by the aforementioned decrease in gross margins and the increase in selling, general and administrative expenses.

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Investor Presentation

Asia led the way in net sales growth with 29% year-over-year growth compared to last quarter. This growth is offset by Europe, North America, Latin America and other regions. Europe sales were down -1.9% YoY, North America sales were down -4.7% YoY and Latin America and Others were down -1.2% YoY annual.

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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 the headwinds of COVID-19, escalating global supply chain issues, runaway inflation and the devastating war in Ukraine. As expected, productivity was negatively impacted in the quarter by the confluence of external headwinds, resulting in inventory-related impairment charges of $4.2 million. Supply issues also hampered our ability to meet product demand and drive growth in our North American segment.

With the mixed 1Q22, we maintained our EPS estimate for 2022 and 2023 of $1.56 and $1.70 respectively. The company is standing on net cash of 21% of current market capitalization or $3.29 net cash per share as of March 2022. This cash positions the company in a strong position to continue to return capital to its investors. The company is undervalued at a P/E of 11.1x for fiscal year 01/22 [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.

Course objective and evaluation

We maintain our price target of $25.10 which reaffirms our thesis that the stock has 60% upside potential 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 approximately 7.9x for the current 2022e financial year. So we multiply 13.9x times $1.56 to get to $21.81, then add back $3.29 net money. We arrived at the P/E estimate by looking at historical company data and the P/E of the S&P 500 and Russell 2000.

We believe the stock will break above its 10-year highs. This was driven by growth in the health and wellness products industry, and in particular the strong growth seen in Asian economies during the quarter. Asian economies are a definite macro-catalyst given secular trends and the rapid growth of powers such as China, Japan and South Korea.

21% net cash of current market capital

The company has a net cash position of 21% of current market capitalization or $3.29 net cash per share as of March 2022. As of the last quarter, net cash used in operating activities was 7 $.9 million, compared to $2.7 million the previous year. . Capital expenditures for the quarter were $1.5 million, up from $1.0 million in the prior quarter. The company had $66.5 million in cash and cash equivalents and $2.1 million in debt as of March 31, 2022.

Redemption of shares

The company repurchased shares worth $8 million at an average cost of $17.74 per share in the first quarter of 2022. The move reflects the company’s commitment to increasing shareholder value as well as its confidence in future business prospects. The company has $30 million remaining in the share buyback program.

Conclusion

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