|Commercial and financial markets bullish on traditional Chinese medicine|
|By Rob Goldman|
|Tuesday, 10 August 2010 03:17|
Nutrastar is the leader in the production and distribution of “Chinese Golden Grass”, derived from Cordyceps Militaris. Chinese Golden Grass is one of the most highly regarded herbal nutrients in Traditional Chinese Medicine, as its enzymes appear to have a very favorable impact on boosting one’s immune system, lowering blood pressure, and combating gastrointestinal disorders.
In a recent interview with Nutraceuticals World, the CEO of PepsiCo was gushing about the use of Traditional Chinese Medicine products in all kinds of nutraceuticals, especially beverages in the near future.
Goldman believes that the Company’s strong management, enviable profit margins, and a large cash position translate into continued success. Following a recent equity offering, Nutrastar has roughly $1.00 in net cash per share and is generating 50% net margins. With the world’s first energy drink made from Cordycepin introduced in 2Q10, the annual sales growth could approach 45% in 2010.
It is easy to see why Goldman Small Cap Research believes that Nutrastar is an incredibly undervalued stock. It is a pure play on the fast-growing nutraceutical market and also the all-important Chinese domestic market. In addition, with huge sales growth, high net margins and a large cash position, the risk profile is dramatically reduced at current levels. After all, the stock is trading around 3x net cash---not earnings-net cash, due to the fact that the Street has not gotten a hold of the story yet.
Following a very profitable 2009 in which Nutrastar earned $7.7M on $15.3M in revenue, Goldman projects $21.5 in sales and $0.62 EPS for 2010 and $28.5M in sales with $0.75 in EPS next year. By initially assigning a conservative 12x multiple on FY10E EPS, the stock could clearly reach the $7.00 price target in short order. The stock closed at $3.16 on Monday, which means that Goldman’s target is more than a double from here, and that is conservative. Goldman Small Cap rates Nutrastar a Speculative Buy.
Rob Goldman has 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell-side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund. Goldman produces research via two formats: Goldman Select Research and Goldman Opportunity Research. The Select product represents the Firm’s internally generated stock ideas while the Opportunity product represents sponsored research reports. This coverage tends to be dominated by early-stage health care, technology and energy sectors. Six month or three month subscriptions can be commissioned by publicly traded company management, investor relations or consulting firms, investment banks, or related parties. Full disclosures and report details are available at goldmanresearch.com