How can I put this?
Americans are… um, fat.
More precisely, 68.5% of American adults are now considered overweight, according to a recent study by the Surgeon General.
Even worse… 35% of those tubby Americans are classed as obese. And the number of obese adults has doubled since the 1980s.
Last year, the American Medical Association officially classed obesity as a “disease” – one that costs $150 billion each year. The National Association for Sport and Physical Education says that by 2018, obesity will account for 21% of total U.S. healthcare costs – $344 billion a year.
But there’s a silver lining…
Amid this epidemic, the number of health-conscious Americans has also grown.
Memberships at health clubs and gyms jumped by 21.5% between 2005 and 2012, and the number of certified personal trainers is rising, too. Jobs in the health and fitness industry are set to jump by 23% over the next decade, according to the Bureau of Labor Statistics.
Simply put, America’s obesity problem isn’t going to disappear anytime soon. But at the same time, active Americans aren’t suddenly going to give up health and fitness.
There are many companies looking to either address the nation’s weight problem, or enhance the performance of those in shape.
This company caters to both.
But just how “fit” is it as an investment?
Let’s give it a grueling C.H.A.O.S. workout and see…
Score Another Winner for C.H.A.O.S.
When I profiled the company two months ago, I noted that “PLX has received buyout attempts in the past. While they failed, the company remains a strong takeover candidate in the increasingly consolidating semiconductor industry.”
On Monday, PLX confirmed those words by announcing that Avago Technologies (AVGO) will buy the company for $309 million.
PLXT shares shot up 9% on extremely heavy volume.
This is yet another reason why I embrace C.H.A.O.S. – and you should, too.
So without further ado, here’s today’s batch…
Fit By Name… And By Nature
FitLife Brands (FTLF) has quickly become one of the leading providers of nutritional supplements for both health- and exercise-conscious consumers, plus those looking to shed pounds.
In other words, it’s capitalizing on two big markets.
And the proof is in the numbers…
FitLife might be a $17-million micro-cap stock, but it doesn’t have the fundamentals of one.
It boasts strong top-line growth and it’s turning a profit.
For example, in 2013, FitLife turned almost $20 million in revenue into net income of $1.3 million.
For a company of its size, that’s pretty solid. There’s just one problem…
Although FitLife boosted revenue by $1.7 million year-over-year, that 2013 net income was down substantially from the $2.5 million in 2012.
What gives? Two things…
First, FitLife received a $657,000 non-cash tax benefit in 2012 that it didn’t receive in 2013.
Second, FitLife’s operating expenses climbed from $4.6 million to $5.7 million, due to its international expansion efforts.
However, the rise in expenses was somewhat offset by the jump in revenue from greater overseas presence.
So, while overall profit dropped, it actually improved the long-term health of its business.
In FitLife’s first quarter, the company reported a quarter-over-quarter increase in both top-line and bottom-line profits.
As you can see, numbers are up across the board. And most impressive of all, year-over-year quarterly profit was up a whopping 52%.
That growth filters down to a strong cash position – $3.3 million, to be exact.
C.H.A.O.S. Meter: 19/20
Now, you might be wondering what a company in the nutritional supplement business has to do with technology.
Well, without technology, there would be no FitLife.
The heart of its business lies in the 50 unique technologies that underpin its nutritional formulae.
These formulae address a range of consumer demands – pre-workout, post-workout, plus formulae geared specifically towards endurance (protein-based), thermogenics and testosterone boosters.
In fact, FitLife’s products can be broken down into four areas…
- Nutrition: This includes products geared towards general health, weight loss and nutritional sports supplements.
- Professional Muscular Development (PMD): As the name suggests, products for people looking to build muscle.
- Siren Labs: Performance-enhancing supplements for fitness enthusiasts.
- Core Active: For accelerated fitness and nutritional goals.
So how does this nutritional technology stack up in terms of impact?
Well, as a regular gym-goer myself, I can say that FitLife’s products work as advertised. And the fact that FitLife is the No. 1 product in General Nutrition Corporation (GNC) stores nationwide – a significant feat, given the many products on the market – I’m clearly not the only fan.
But therein lies the problem…
There are loads of companies with products like this, too.
And these products have one major issue…
They’re not entirely proprietary.
Don’t get me wrong… FitLife does have some patents, along with several trademarks on its products, names and logos. But as is often the case with most chemical formulae, crafty companies can tweak a few ratios here and there and achieve near-identical results. Which is why the market is so saturated.
But on a positive note, supplement manufacturers play the same game that consumer gadget makers play…
They’re forced to constantly “upgrade” their products to stay ahead of the pack. Walk into any GNC store, and count how many “New” or “Improved” formulae you see.
And as it happens, FitLife is one of the best at keeping ahead. It’s always working on new ways to improve its current formulae and create new ones that address emerging or evolving consumer demands.
That’s how the company vaulted from niche supplier to industry heavyweight in only a few short years.
C.H.A.O.S. Meter: 15/20
Right now, FitLife is a largely unknown stock. So like most micro caps, shares should dart higher once the company gains wider recognition from institutions, the media and, in turn, the retail-investing masses (who are always late to the party).
That’s the big picture.
In the near term, the company has three accelerators:
- Expansion: Any new announcements on domestic or international expansion should only increase FitLife’s presence – and sales.
- Acquisitions: Buying a rival firm would not only eliminate some competition for FitLife, it would also own new products and be able to address new markets… thus diversifying the company’s portfolio and allowing it to compete better.
- Earnings Reports: A no-brainer, I know… but keep in mind that stocks as small as FitLife are highly sensitive to news.
FitLife’s strongest catalyst, however, will be its growing top-line and bottom-line numbers. And given its strong recent track record, the foundation is in place for this trend to continue. Especially now that FitLife’s “interim” CFO, Michael Abrams (the man largely responsible for the firm’s successful turnaround), now has the position full-time.
Of course, there are potential anchors, too…
For example, FitLife’s formulae have to run through a strict regulatory gauntlet. Clearly, negative news here would hurt.
That said, many of FitLife’s products don’t require FDA approval. A good thing? Maybe. But it could affect the public’s perception, given the lack of actual scientific evidence as to their efficacy.
C.H.A.O.S. Meter: 15/20
FitLife’s orders come from one company – GNC.
To be fair, though, given that GNC is a “franchise” model, FitLife is really doing business with the individual franchise locations that carry its products. So each franchise essentially represents “one individual customer.” And since FitLife’s products are sold in 1,100 worldwide GNC locations, it technically has 1,100 customers.
In its first quarter, FitLife’s GNC revenue rose by 4.5% from Q1 2013, driven by strong domestic demand at the end of the quarter. But as FitLife has expanded its GNC business from 250 locations in 2010 to 1,100 today (800 in the United States and 300 overseas), you can see why its revenue has jumped in recent years.
As FitLife aggressively seeks more GNC business, orders should continue to grow.
The problem here, though, is obvious…
While FitLife has expanded its client base strongly, the fact that it has such a strong dependence on one company is pretty risky. That costs FitLife a few points on the C.H.A.O.S. Meter here.
C.H.A.O.S. Meter: 14/20
FitLife has three strategies for scaling its business…
First, as I noted earlier, expansion is key. FitLife is currently only in 800 of GNC’s 6,400 retail locations… so there’s plenty of room to grow.
Second, FitLife is putting heavy focus on expanding its brand internationally (a task that GNC has helped it achieve). Right now, FitLife is only in 300 of the nearly 2,000 international GNC locations.
Third, FitLife plans to launch a newly developed Core Active Nutrition product line, plus an entirely new brand – Zyri Labs – which should debut in the fourth quarter.
Given the above, FitLife is well positioned to scale its business higher, and pull in significantly higher revenue, too.
In fact, management anticipates a double-digit compound annual growth rate (CAGR) over the next three to five years.
C.H.A.O.S. Meter: 18/20
Final Verdict: Look… FitLife isn’t wreaking “chaos” by curing cancer, creating entirely new products, or completely changing the way its industry operates. But it is dominating its industry – with no sign of stopping anytime soon.
And it is changing lives by tapping into the massive health and fitness trend, helping people lose weight and enhance their workout experiences. This trend shows no sign of stopping anytime soon, either.
As such, consider tapping into FitLife’s expansion by picking up a few shares.
Your eyes in the Pipeline,