Stock Watch - MTEX
(September 2, 2004)
Please read our disclaimer before reading
the following information. Be sure to utilize a hard stop in each trade that
Before I go on to discuss the latest stock on our watch list, I want to let
my readers know that I have been posting my thoughts and other interesting news
items in our Discussion Forum at various
times throughout the last couple of trading days on MTEX, among others. Readers
are encouraged to check these postings out - as they are mostly posted throughout
the trading day as events unfold. Readers are also encouraged to exchange ideas
and views - so please start posting in our Discussion Forum!
Some of my readers may know in the past that I have mentioned
the potential of the nutritional and wellness market. As real income increases
around the world and as the price of all other consumer goods come down (such
as PCs, other electronic goods, and clothing) consumers will ultimately find
other ways or goods to spend their money. The nutritional and wellness industry
is projected to increase from a $200 billion to a $1 trillion industry in ten
years - as consumers become more educated and aware of nutritional issues and
as the boomers start to retire.
We believe that Mannatech, Inc. is poised to enjoy the fruits of this growing
industry. The company is involved in the development and sales of things such
as nutritional supplements and weight management products - and it does this
by employing "a global network marketing system" of over 300,000 associates
in countries such as the U.S., Canada, Australia, the UK, Japan and New Zealand.
The company is also becoming involved in South Korea, as well as Taiwan. If
recent trends hold true, then this company still has a lot of potential to grow
in the world markets.
In their latest earnings report released on August 10th, Mannatech,
Inc. reported a net sales increase of 59.8% and a net income increase of 376.1%,
as compared to the year-ago same period. For the first six months of 2004,
net sales increased by 52.5% while net income increased by 220%. Based on the
net income of the first six months of 2004, the P/E ratio for the company is
only at 18.7 - while both net sales and net income do not show signs of slowing
The daily chart of MTEX shows signs of overbought conditions, but the weekly
chart still looks good. The fact that it has recently convincingly pierced
both the 50 DMA and the 200 DMA is a bullish sign. The stock also broke out
of a recent consolidation phase yesterday - however, since MTEX is overbought
on a daily basis, investors or traders may want to wait for a slight correction
before buying in.
Again, I believe that we are still in a cyclical bull market, and the nutritional
and wellness industry is probably one of the few industries that are still experiencing
exponential and legitimate growth. Because of this, the author thinks that
MTEX represents a compelling buy.
BTW, I would also like to take this opportunity to perform a correction to
our CALM article that I wrote a few weeks ago. The float information for CALM
on the yahoo page is not correct, as short interest in CALM (which increased
another 1.3 million shares between July and August) is currently approximately
66% of the total float - which represents a float closer to 10 million shares.
I would also like to correct the following statement: "A 4-cent profit for
each dozen would give the company a 50-cent per share net income during the
quarter (which is still a very respectable number). This is assuming that
prices stay at 69 cents a dozen. If/when prices start moving back up soon,
then net income would definitely surpass this going into the Fall and Winter
period. Moreover, it is interesting to note that for the 39 weeks ending
March 1, 2003, the average selling price for eggs were 63.1 cents.
Given Greenberg's assumption, Cal-Maine would have lost money. Instead,
Cal-Maine made 67 cents a share in net income during that 39-week period."
A 4-cent profit for each dozen should represent a 25-cent per share net
income, not a 50-cent per share net income. The data that I had used to compute
this number represents data before the recent split in the company's shares.
I apologize for this mistake.
Henry K. To, CFA
P.S. Please discuss this stock in our individual stocks