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Nutrastar - The Greatest Opportunity for 2014
Posted by: Libertadpp (IP Logged)
Date: January 13, 2014 04:51PM

Company History and Business

Nutrastar International (NUIN) is a leading producer of Cordyceps products, a very popular ingredient used in Chinese medicine to enhance health. Its effectiveness is proved, and we also use it in the occident for many purposes: strengthening the immune system, improving athletic performance, reducing the effects of aging and improving liver function in people with hepatitis B.

Nutrastar is the only company that can produce the sought-after natural herb on a mass commercial scale. The company is the largest producer of this ingredient, currently producing 72 tons annually where the estimated global capacity is around 250 tons. So it has a very attractive and durable competitive advantage, that can be seen in its incredible operating margin of 63%.

The company also produces organic and specialty food products.

In the last five years, the revenue has grown at 23% a year, and EBITDA at 34% a year.

So, we have a  good business, that is easy to understand but not easy to replicate, and growing faster than the market.

Financial Strength

The company has no debt, and it can expand its operating margin without incurring new debt, so we can be quite unconcerned. GuruFocus gives Nutrastar a financial Strength of 9/10.

We will talk about valuation later, but it's important to say at this point that Nutrastar's price is less than NCAV, even less than net cash, is growing its NCAV year by year:

 Management

The company has a deputy director of the Institute of Edible Fungus, very important for knowing all about Corcyceps, and a Certified Public Accountant that holds a B.S. degree in accounting and finance and an MBA, but the most important thing is that recently acclaimed value investor, Richard Fearon, significantly increased his ownership of the company through private transactions.

Richard Fearon is the manager of Accretive Capital Partners, and was recipient of HFM Week Magazine’s 2011 Best Single Manager Long-Term Performance award among all U.S. hedge funds under $250 million.

Now, chief executive officer and founder, Ms. Lianyun Han, has been decreased her voting power from approximately 52.7% to 47.2%. It's important for a company not to be controlled by one individual, and I'm sure Richard Fearon can add value to shareholders.

Valuation

Now we get into the best part, price. Nutrastar is now selling at $2 per share, when its net cash is $5.57 per share, and net cash is growing month by month. It's selling at a PER of 1.6 and price to tangible book of 0.3, below its conseravative liquidation price.

So, here we have a good business, growing year by year, selling each dollar of net cash for 40 cents, and having a recent investment of a very good value investor (and  insider buys). Maybe they are preparing a share buyback program.

I think it's the greatest opportunity for 2014.

Risks

The only risks I see are the volatility and the bid-ask spread; sometimes it's fair, sometimes it's wide. But if you keep calm and wait, I think the margin of safety is so huge that the risk is very limited.

 

This is the trend of google searches of the word "Cordyceps":

(I'm now long on NUIN.)



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: Hapkido (IP Logged)
Date: January 14, 2014 06:02PM

Sounds too good to be true::)



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: eqp53 (IP Logged)
Date: January 14, 2014 06:37PM

That's what I thought when I saw Google selling at 300$, or apple at 400, or when I see a company selling for less than NCAV. it's too good to be true, there must be a reason. But then...the results come, you notice your analysis was right, and you learn what Buffett says: " the market is there to serve you, not to instruct you ".


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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: eqp53 (IP Logged)
Date: January 15, 2014 06:53PM



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: libertadpp (IP Logged)
Date: January 17, 2014 07:59AM

I think there are two reasons for this cheap valuation:

1.- the  eastern medicine products are misunderstood in the occident. But there are a lot of studies about Cordyceps.

2.- The lack of confidence in chinese companies, But Nutrastar has increasingly American directors and shareholders. And now, China is opening the markets.

And of course, big funds are not going to care about a little company of only 30 million.

 

 

 



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: libertadpp (IP Logged)
Date: January 17, 2014 12:09PM

1 day after this article, somenone wrote another one:

[seekingalpha.com]

good comments. More pros than cons.



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: vgm (IP Logged)
Date: January 19, 2014 05:29AM

Thanks for drawing attention to this company. Intriguing. At first glance it does look too good to be true ("If something looks too good to be true then it probably is" Buffett) but on the other hand it has several idiosyncratic features which would make potential investors cautious, as the author explains. Richard Fearon's involvement is highly encouraging. The 10K is a good read. 

Another short article has been published:

[seekingalpha.com]

Thanks for the stimulation. 



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: libertadpp (IP Logged)
Date: January 19, 2014 07:04AM

Very interesting, thank you. The interest for this company is rising. It would be very important to trade on Nasdaq, to expand internationally to get foreing currencies, or to get the ability to exchange chinese yuans to dollars, 2014 is the year for new chinese financial laws. I have 20% of my portfolio on Nuin now. I will wait with patience.



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: LwC (IP Logged)
Date: January 19, 2014 01:27PM

"Its effectiveness is proved…"

From Drugs.com:

"In vitro evaluation and animal studies of cordyceps and its chemical constituents suggest potential therapeutic applications; however, despite a significant number of clinical studies, the overwhelming majority had poor methodologies. Very few large, randomized, controlled clinical trials have been conducted (several of which evaluated cordyceps in combination with other agents), making definitive statements about the efficacy of cordyceps premature."  (bold emphasis added)

[www.drugs.com]

Too good to be true indeed.  Count me as a skeptic, though lack of evidence for the efficacy of the stuff may be no deterrent to above average performance of this company's stock.



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Re Nutrastar - The Greatest Opportunity for 2014
Posted by: vgm (IP Logged)
Date: January 19, 2014 03:48PM

LwC -- it's well established that proving clinical efficacy of Traditional Chinese Medicines (TCM) according to Western medical protocols is extraordinarily challenging. Even the universally-recognized benefits of green tea are difficult to 'prove' in the clinic. The reasons are many. There is, however, abundant in vitro (ie, laboratory not clinical) evidence for biological effects of individual chemical constituents of Cordyceps - eg, anti-oxidant - which are consistent with clinical effects. There is in fact also some preliminary positive clinical data:

[www.ncbi.nlm.nih.gov]

However, the reasons why TCM remedies have survived for (literally) thousands of years is that they work. People derive benefit(s). If there were none, they would not have survived. They sell because they work. The better the effect, the more desirable they will be. For Nutrastar, the questions are do their products work, can they maintain a moat, and can the market be increased.

If you want bona fide Western-style clinical validation as a sine qua non for considering NUIN, you're wasting your time. Judging Chinese remedies requires a different mental approach. 



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