Recently RedChip reiterated its “Buy” rating and established a $1.70 12-month price target based on a Price-to-Sales ratio of 1.28x on estimated revenues of $39.8 million. The updated report was published soon after Vertical Branding recorded its fifth consecutive quarter of year-over-year revenue growth with sales totaling $9.1 million, a 71% increase from the same period in 2006.
Gross profit from the company’s 3Q 2007 of operation increased 56% to $5.2 million. Even though the gross profit experienced a large increase, margins fell 5% to 58%. The decrease was reported to be a result of the shift from transactional marketing to retail distribution channels. On a sequential basis, operating and net margins contracted by 3.3% and 2.7%.
RedChip Analyst, Tony Telan, MBA, stated, “We believe that going forward the Company will continue to successfully execute on its strategy of integrating advertising methods used in the transactional marketing business to drive product sales through its retail distribution network. Management has stated that its plans for continued development of the retail distribution segment is key to delivering shareholder value.”
“At a current price of $0.54, VBDG trades at a P/S multiple (ttm) of .38x, which is significantly lower than the average of its industry peers, Bare Escentuals (NASDAQ: BARE); NutriSystem (NASDAQ: NTRI); and Nautilus, Inc. (NYSE: NLS), which trade at P/S multiples of 4.0x, 1.1x, and .30x, respectively. VBDG successfully differentiates itself from competitors through its Return on Investment (ROI) marketing strategy, continuity offers and proprietary retail distribution channels. We believe that VBDG’s multi-channel distribution, proven business strategies, and consistent quarter-over-quarter revenue growth warrant a higher valuation that is more in line with its peer group,” he added.
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