Back in early November, I cited several examples of NASDAQ companies that have sacrificed profitability to drive top line sales growth (see repost below). And despite their streak of net losses, the have been richly valued by wall st due to their sustained high rate of sales growth.
IMO, it is not the lack of profitability, but rather the continued dilution resulting from the overly generous share compensation to sr mgmt (Brad in particular) that has caused this most recent share price decline. And when there was a recent repeat of this sr mgmt share bonanza giveaway, it caused some high dollar investors to draw the conclusion that sr mgmt has no intent to share any future success with outside investors. As a result, I believe that some decided to begin exiting their relatively large long positions, which has led to this recent significant share price drop.
I believe that if Brad were to publicly commit to putting an end to the sr. mgmt share giveaways (which may be a very big 'IF'), then the continued sales growth alone (which I think will be accelerating, and will be clearly evident in Q4) would fuel a much higher share price.
As always, simply my opinion.
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It is not uncommon for publicly traded companies to sacrifice bottom line earnings while focusing more on growing their top-line sales (at least, in the early years). Some have brought up Muscle Pharm's lack of profitability, which is a fair point. Especially in light of the fact that the very recent 10-Q restatement has reversed MP's formerly profitable Q2 '14 into a net loss.
While sustainable profitability is an important, long-term measure of a successful enterprise, it is not as important during the early years, when more focus might be placed on sales growth.
Here are just a few (within various industries) of the many companies near a billion dollar valuation (+/- 30%) that have also (just as Muscle Pharm) booked a net loss for a series of quarters while growing their sales.
AMAG:NASDAQ - booked losses 4 of the past 5 quarters. Sales of around $90 million for the past 12 months. Current market cap of about $720 million.
ACTG:NASDAQ - booked losses 5 of the past 5 quaters. Sales of around $114 million for the past 12 months. Current market cap of around $900 million.
EPAY:NASDAQ - booked losses 4 of the past 4 quarters. Sales of around $300 million for the past 12 months. Current market cap of around $1 billion.
CSII:NASDAQ - booked losses 5 of the past 5 quarters. Sales of around $148 million for the past 12 months. Current market cap of around $960 million.
ELGX:NADAQ - booked losses 3 of the past 4 quarters. Sales of around $140 million for the past 12 months. Current market cap of around $750 million.
LDRH :NASDAQ - booked losses 5 of the past 5 quarters. Sales of around $125 million for the past 12 months. Current market cap of around $890 million.
What each of the above companies has in common with Muscle Pharm is that they have experienced a series of quarterly losses while growing their top-line sales. And in most instances, Wall Street has rewarded their sales growth effort with a relatively high price/sales multiples.
With continued sales growth, I expect that the investment community will assign an ever increasing sales multiple to Muscle Pharm (for market cap valuation purposes).
As always, simply my opinion.
MSLP
