I feel it is fair to say that it has been a disappointing year for shareholders of Australian Pharmaceutical Industries Ltd (ASX: API).
Year-to-date the shares of the owner and operator of the Priceline, Soul Pattinson, and Pharmacist Advice brands are down 5%, compared to a staggering 37% gain from arch rival Sigma Pharmaceutical Limited (ASX: SIP).
Surprisingly, the underperformance of its shares comes despite the company delivering bumper profit growth this year. In October API reported underlying net profit after tax growth of 18% to $51.4 million.
Once again the Priceline brand was a key driver of the strong result. Sales in the segment grew 7.6% to $1.15 billion thanks partly to market share gains in key categories such as colour cosmetics and skincare.
During the year the company opened up 22 new Priceline stores, bringing its store network to a total of 442. A further 20 stores are expected to open over the next 12 months.
So why have the shares underperformed?
I would put a lot of the underperformance down to the fact that its shares were already a little on the expensive side. Its shares had been changing hands at as much as 20x full year earnings at times this year, which was a little on the high side historically and for its growth rate.
Also the uncertainty caused by CEO and managing director Stephen Roche's plan to step down from the role in February 2017 may have been a concern for investors. But I feel confident that the appointment of Richard Vincent from within will mean business as usual for the company.
So with its shares now priced at around 14x estimated FY 2017 earnings, I believe API represents a great investment option.
Especially with management anticipating another strong performance ahead in FY 2017 and its shares expected to provide a fully franked 4.2% dividend according to CommSec.
Sigma may have outperformed API this year, but I feel quite confident that in 2017 it will be a very different story.
