Notes

Natural Alternatives International Inc. NAII

"NAI, headquartered in San Marcos, California, is a leading formulator, manufacturer and marketer of nutritional supplements and provides strategic partnering services to its customers. Our comprehensive partnership approach offers a wide range of innovative nutritional products and services to our clients including: scientific research, clinical studies, proprietary ingredients, customer-specific nutritional product formulation, product testing and evaluation, marketing management and support, packaging and delivery system design, regulatory review and international product registration assistance."

Roughly 20% of sales are outside the US, mostly in Europe; it also has operations in Switzerland. It does a lot of currency hedging.

The industry (drug-related products) has a 5-year expected PEG of 0.95: http://finance.yahoo.com/q/co?s=NAII

25May07

27APR07
Quarterly report:
* Third quarter fiscal 2007 net income ... decrease of 41%, from the same quarter last year." (per diluted share)
* Revenue flat

Expects a YOY revenue decline next quarter:
"In the fourth quarter of fiscal 2006, we enjoyed a record quarter for revenue. During that quarter, we shipped significant initial orders to a new customer and are now shipping additional orders to that customer. We do not expect to repeat last year's record fourth quarter, and we anticipate revenue in the fourth quarter of fiscal 2007 will be in line with revenue in the just completed third quarter."

Not much comment on the decline in earnings or what to expect in the future: " a shift in mix from our higher margin branded products sales to lower margin contract manufacturing sales, negatively impacted our operating income. " Also, some TV doctor-evangelist named Doctor Cherry sold a Doctor Cherry "Pathway to Healing" product line, and Cherry no longer does his TV show.

"Historically, our revenue has been largely dependent on sales to one or two private label contract manufacturing customers"... losing one contract would severely impact sales. So..."during fiscal 2006, we established relationships with two new private label contract manufacturing customers, and completed our acquisition of RHL, an integrated direct marketer of its own and third party branded nutritional supplements and other lifestyle products."

Balance sheet: Moderate growth in shareholder equity; no preferred or convertible shares; 30% of book value is intangible.

Market cap. $50M
Trailing P/E (ttm, intraday): 22.17 <-- too high for average growth prospects
Price/Sales (ttm): 0.48 <--much lower than industry average
Price/Book (mrq): 1.43

Total Debt/Equity (mrq): 0.141
Current Ratio (mrq): 2.076

Positive cash flow.

% Held by Insiders: 54.23% <--Nice
% Held by Institutions: 12.10%
No insider purchase in over 6 months.

Thoughts: Decent value, solid balance sheet. The PE implies growth rate of 20% in the next year, which doesn't seem supported by recent results; but, it has a lot of revenue to work with. Price trend is downward, and it probably won't improve for at least a quarter, due to timing of sales and expenses. Small company, so a single event can have major impact. No analyst following, and no insider buying, although insider ownership is good. Probably a defensive line of business. WNI is bigger with a lower PE; NXXI is a better growth pick, but more speculative.

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