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XMFHelical (< 20)

May 2010



Adding to my Watchlist - NBTY

May 25, 2010 – Comments (0)

This isn't a company I'm interested in owning .... today. NBTY (NYSE:NTY) sells a large number of branded nutritional supplements, so it feeds that nice demographic of 'aging boomers desperate to stay healthy'. The EV ~$2.3B company sells now for a P/E of <9, with an even lower forward P/E and has a reasonably healthy balance sheet.

But, the company sells cheaply for a reason. The last 3 years have seen healthy growth to the top line of revenues, but earnings (and cash flow) has fallen off each year. The company just crashed on a disappointing quarterly announcement, one that has gotten a few legal groups calling foul on how effectively the company has been communicating material issues in the past.

The company is run by Scott Rudolph, the son of the 81 year old founder Aurthur Rudolph, and has about 10% insider ownership (Yahoo - didn't look to the 10K yet).

We have a pretty decently profitable business that appears to be run poorly. This is still a company with an ROE of > 20%, but over the past 3 years, gross and profit margins have been only getting worse.

So, I want to see an activist investor get interested. Any one will do. The founder is old, the son is not apparently all that skilled, lawyers are circling, but the business itself is pretty sound. Current insider ownership does not look to be too high to be overcome (don't yet know about change in control provisions or poison pills). To the watchlist with it to see if anything develops.

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