It's always exciting to see companies deliver rising profits, particularly when it's a significant rise, and even more so when you own the company.
The first half profit guidance released by Blackmores Limited (ASX: BKL) to the market this week – up 50% on the same time last year – is likely to have shareholders leaping for joy.
Shares shot up from $34 to $39 and with extremely low trading volume the rise could be even higher as excited buyers bid for a small number of shares.
Although management declined to give a figure since results are still subject to an audit before being released to the market in February, a look at last year's first half results ($12.1 million Net Profit After Tax) would indicate that the first half this year should be worth around $18 million Net Profit After Tax to shareholders.
2012's first half delivered ~$13 million Net Profit After Tax, so as readers can see, the results released this week are a substantial increase on previous years and in fact this first half is a strong contender for Blackmore's best half-year results ever.
The growth appears to be due to several factors, with record sales and growth in every channel in Australia playing its part, as well as Blackmores' Asia headquarters now becoming operational.
With strong consumer demand for and growing awareness of alternative, complementary, or natural medicines, Blackmores looks to be onto a good thing.
More importantly, the company is focussing strongly on delivering 'evidence-based complementary medicine' (where scientific and statistical analysis proves beyond reasonable doubt that a therapy is effective), which is perhaps the single most important factor to Blackmores maintaining its performance.
Consumer demands and trends change all the time, and that's true in pharmacy as well as anywhere else. Focussing on remedies scientifically proven to be effective will support sales even if consumer preferences swing away from alternative medicine.
A 50% leap in profit is very impressive, but it's also worth noting that Blackmores shares have climbed 47% in the past 52 weeks.
With very, very low trading volume – think 10,000 shares a day or less – that creates a lot of potential for Blackmores shares to change value quickly, with or without major changes to the company itself.
Investors looking to get on board could consider waiting for a decline in enthusiasm for the shares or profit taking which could quickly cut them back to size. At today's price to earnings ratio of 23, the company looks a little overvalued to me, especially with a plethora of alternative growth shares out there.
