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Is the BWX Limited share price a buy? The CEO thinks so

The BWX Limited (ASX: BWX) share price has dropped by over 30% since it reported its half-year result a couple of months ago. John Humble, the CEO of BWX, decided to buy 164,754 shares at $4.859 last week.

BWX is Australia’s largest natural beauty company with a variety of brands. Its most popular range of products is Sukin but it also owns other brands including Renew Skincare, Uspa and Edward Beale.

In the half-year result to 31 December 2017 BWX said Sukin’s net revenue increased by 17%. One important point to consider with this growth is that management said the gross margin has not been impacted even though the company has started selling through Wesfarmers Ltd’s (ASX: WES) Coles.

One of the main reasons why the share price has dropped so much is that the acquisitions didn’t perform quite as well as investors were hoping.

During the past year the company has made three acquisitions. Nourished Life is an online Australian platform which sells natural beauty products. Mineral Fusion and Andalou Natural are two natural beauty businesses which sell products in the US. All three reported revenue growth in the 2017 calendar year compared to the 2016 calendar year, but not as much as was hoped.

Australian feedback has been positive on Mineral Fusion and Andalou Natural whilst there has been positive US reaction to Sukin. There could be a lot of growth to come with the brands reaching into each other’s markets.

If it weren’t for the acquisition costs the BWX ‘normalised’ profit would have grown by 30.5%. In the short-term the numbers weren’t great but things could be different in the long-term.

Foolish takeaway

I believe in the long-term future of the BWX, its multi-brand approach is working and I think profit will accelerate once Sukin is established in the US over the next couple of years. BWX is currently trading at 18x FY19’s estimated earnings, which I think is an attractive price for a growing business.

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Motley Fool contributor Tristan Harrison owns shares of BWX Limited. The Motley Fool Australia owns shares of and has recommended BWX Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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