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China-Biotics, Inc. (CHBT) recently reported record full year revenue but the stock is still cheap, trading at just 7.6x forward earnings compared to its industry which trades at 13.6.
China-Biotics manufactures probiotics dietary supplements which are sold over the counter through distributors to pharmacies and supermarkets in Shanghai, Jiangsu, an Zhejiang province.
Probiotics are live bacteria which improve intestinal health and digestion. In May 2010, the Ministry of Health announced an expanded list of 21 probiotics. China-Biotics carries all 21 on the list.
Bulk Business Expands in 2010
On July 7, the company provided an update on its bulk additive operation. As of the end of June, China-Biotics saw its bulk customers increase to 39, among which 4 were animal feed producers and the rest were dairy enterprises.
The production utilization rate for the Qingpu bulk additive facility also ramped up to over 60 metric tons per year. The company is looking to expand its market share in fiscal 2011.
In fiscal 2010, the bulk additive line accounted for 26.8% of annual revenue, up 8.3% from fiscal 2009. The company sees large potential in the Chinese yogurt market.
Share Buyback Program Initiated
Also on July 7, China-Biotics announced it would repurchase $20 million of common shares in the next 12 months. The purchases will be made from time to time on the open market.
The buy backs will be funded from available cash.
"Given our proven track records of business expansion and strong balance sheet, we believe that our stock is deeply undervalued," said Mr. Jinan Song, Chairman and Chief Executive Officer.
Revenue Soared 64.5% in the Fiscal Fourth Quarter
On June 11, China-Biotics reported its fiscal fourth quarter 2010 results and met the Zacks Consensus Estimate of 36 cents per share.
Revenue hit a new quarterly record of $25.5 million from $15.5 million in the year ago quarter. The quarter was boosted by increased sales in retail and bulk additive products.
Gross margin also rose to 69.4% from 68.5% in the fourth quarter of fiscal 2009. The increase was due to a change in product mix as bulk sales climbed.
For fiscal 2010, revenue surged 50% to $81.4 million as sales volumes rose in both its retail and bulk additive segments.
"In fiscal year 2010, our retail business continued its steady growth, as 'Shining Essence' remained one of the most popular products in the retail probiotics market while our diversifying product portfolio is attracting different customer groups," said Mr. Jinan Song.
Outlook for Fiscal 2011
The company didn't give earnings guidance for fiscal 2011 but it did forecast another 50% year over year increase in net sales.
The analysts all liked what they heard and have been raising estimates. The fiscal 2011 first quarter Zacks Consensus Estimate is up 2 cents to 33 cents in the last month as 2 out of 4 estimates have been revised higher.
The full year has also been revised higher in the last 30 days by 6 cents to $1.64 per share.
Analysts see fiscal 2011 earnings growth of 28% and fiscal 2012 earnings growth of 50%.
China-Biotics is scheduled to report fiscal first quarter 2011 results on Aug 16.
Value Fundamentals Are Strong
By any metric, China-Biotics is pretty cheap. Not only does it have a low P/E ratio but its price-to-book ratio is just 1.8 which is well under the industry average of 3.6.
It has a great return on equity of 25% whereas its industry has seen a negative ROE of 20% over the same period.
China-Biotics is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.