Stock Pick of the Week: Buy Schiff Nutrition Intl (WNI) — Very Attractive Rating – Small Cap Special

Schiff Nutrition Intl (WNI) is my Stock Pick of the Week as well as one of October’s Most Attrac­tive Stocks – Small Cap Special.

Like all of our Most Attrac­tive Stocks the com­pany has (1) high and ris­ing eco­nomic prof­its (as dis­tinct from account­ing prof­its) and (2) a cheap val­u­a­tion. As shown in our report on WNI, the company’s ROIC (17.1%) is in the Top Quin­tile of all the com­pa­nies we cover and its eco­nomic earn­ings are grow­ing. At the same time, the stock’s val­u­a­tion implies that WNI’s prof­its will decline by 25% and never grow again. In other words, the stock mar­ket is pre­dict­ing a per­ma­nent decline of 25% in WNI’s prof­its. The mar­ket is set­ting the profit growth bar quite low for this stock.

HIDDEN GEMS:

  1. Our dis­counted cash flow analy­sis shows that WNI’s cur­rent val­u­a­tion (stock price of $7.89) implies that the company’s prof­its will decline by 25% and never grow again.
  2. The com­pany grew its economic earnings more than its reported earnings. Economic earnings rose by $9.1mm (506% increase) while Net Income rose by only $8.1mm (79% increase) during its last fiscal year.
  3. The com­pany has $42mm in Excess Cash, which we remove from our Invested Cap­i­tal cal­cu­la­tion. $42 mil­lion is 20% of WNI’s mar­ket cap.

For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our report on WNI. See Appen­dix 4 to learn how WNI increased NOPAT by cut­ting costs and increased its NOPAT Mar­gin from 5.2% to 9.3%. See Appen­dix 5 for details on how WNI grew Invested Cap­i­tal slower than rev­enue and drove Invested Cap­i­tal Turns higher. Appen­dix 7 (in the Return on Invested Cap­i­tal sec­tion) shows how the com­pany improved NOPAT Mar­gin and ris­ing Invested Cap­i­tal Turns result in an increase in ROIC (from 8.7%% to 17.1%) and Eco­nomic Profit, which rose by $506% while Net Income rose by only 79%.

As per and , WNI fits the Risk/Reward pro­file of a great stock to buy.

**See and Eco­nomic Ver­sus Account­ing Prof­its for more detail on why account­ing prof­its are not reli­able indi­ca­tors of cor­po­rate prof­itabil­ity or value creation.

Note: Stock pick of the week is updated every Tuesday.

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