Associated Press medical writer Marilynn Marchione recently coined the phrase "Big Herba" in an article she wrote about the supplements business. It seems the mom and pop operations of the past have been replaced by companies as slick as those in the pharmaceutical industry. While not nearly as profitable as the drug companies, they certainly merit your investment consideration. I say enjoy Nature's Bounty.

IN PICTURES: Top 10 Solutions For A Big Tax Bill

NBTY & Competitors

Company Market Cap P/S P/B PEG
Perrigo Co. (Nasdaq:PRGO) $2.57B 1.26 3.10 1.10
NBTY (NYSE:NTY) $2.19B 0.94 2.31 1.47
Herbalife (NYSE:HLF) $2.00B 0.87 7.40 0.76
Usana Health Sciences (Nasdaq:USNA) $451.44 1.01 10.54 0.98
Schiff Nutrition (NYSE:WNI) $166.09 0.84 1.50 N/A

NBTY got its start in 1979 under one of its brand names, Nature's Bounty, Inc.; the current name was adopted in 1995. Today, it is a vertically-integrated manufacturer, marketer and retailer of nutritional supplements, selling 25,000 products to its customers. It manufactures 90% of the products that it sells through four operating segments: wholesale/U.S. nutrition, North American retail, European retail and direct response/e-commerce. Together these four divisions did $2.18 billion in sales in fiscal 2008 with the wholesale business generating over half of total revenue. This is a big business that is getting even bigger. (Make smart investments by spotting up-and-coming success stories early, read 3 Secrets Of Successful Companies.)

Decent Growth
Sales in the last five years have grown from $1.65 billion in fiscal 2004 to $2.18 billion in fiscal 2008. That's a 7.2% compounded annual growth rate. Unfortunately, on the income side, it's been up and down. In fiscal 2005, the company made just $78.1 million in net income. Two years later, its net income was $207.9 million. While there is one quarter remaining in fiscal 2009, it's a good bet that net income will be less than fiscal 2008, somewhere around the $100 million mark. Why is this happening? Because NBTY's wholesale gross profit margin is considerably lower than either its retail or e-commerce segments, lowering its third quarter gross margin by 600 basis points to 45% from 51% the year before. This definitely needs fixing. Herbalife, its biggest competitor, has an operating margin of 13.7%, more than 500 basis points better than NBTY.

Blew the Door Off Earnings
NBTY's Q3 earnings excluding impairment charges and IT write-offs beat analyst expectations by 80%, 90 cents compared to the projected 50 cents. Third quarter revenue jumped 22% to $652 million from $535 million. Most impressive was its adjusted EBITDA, which increased 25% to $109 million from $87 million in the same quarter last year. Last July it paid $370.6 million to buy Leiner Health Products. With its acquisition fully integrated, the wholesale business is experiencing significant growth in revenue and market share, growing by 40% in the third quarter alone to $396.2 million from $283.6 million in Q3 2008. This outstanding performance led Wedbush Morgan in June to upgrade NBTY from "hold" to "buy," suggesting its acquisition of Leiner will make and save it money. In addition, Wedbush set a new target price of $30, which the company has passed, up 126% year-to-date. (This measure has a bad rap, but it's still a valuable tool when used appropriately, for more, read EBITDA: Challenging The Calculation.)

Bottom Line
NBTY has a lot going for it. Investopedia's Glenn Curtis said as much in his November 2008 article about the trend towards healthy living. Although he was talking about Herbalife, I think the same is true for NBTY. Despite sporadic results year-to-year, it's been able to grow its book value per share 17.7% over the past 10 years. I don't know about you, but I'd call it a nature's bounty. Here's to healthy living!

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  2. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  3. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  4. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  5. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  6. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  7. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  8. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  9. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  4. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  5. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  6. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
Trading Center