Long-Term Sports Nutrition Demand And Global Expansion Will Support Future Business Performance

Catalysts

About Applied Nutrition

Applied Nutrition is a global sports nutrition, health and wellness company that develops and manufactures a broad range of performance and lifestyle supplements.

What are the underlying business or industry changes driving this perspective?

• Continued consumer shift toward everyday use of sports nutrition, health and wellness products, supported by rising gym participation and supplements becoming a staple rather than a luxury, may support top line growth and operating leverage in the medium term, potentially benefiting revenue and earnings.
• Expansion into new geographies such as Eastern Europe, Latin America, Asia and Canada via a scalable B2B distributor model may create a long runway for international penetration with limited incremental fixed cost, which could underpin future revenue trends and EBITDA margin resilience.
• Significant investment in automated in-house manufacturing, new warehouse capacity and additional production lines is expected to increase effective sales capacity toward around GBP 300 million and improve logistical efficiency, which may support gross margin stability and free cash flow over time.
• Broadening of the product portfolio beyond whey protein into collagen, greens, hydration, capsules and stick packs reduces dependence on any single input, which may help to mitigate raw material volatility while enabling innovation-led pricing, potentially supporting gross margin and profit trends.
• Deepening relationships and joint business plans with major retailers, alongside a growing D2C and subscription channel, may increase brand visibility and basket share with a widening demographic, which could support more recurring revenue and more predictable earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Applied Nutrition's revenue will grow by 14.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.7% today to 20.5% in 3 years time.
• Analysts expect earnings to reach £33.3 million (and earnings per share of £0.14) by about December 2028, up from £21.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, down from 26.1x today. This future PE is greater than the current PE for the GB Personal Products industry at 16.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The sports nutrition, health and wellness category is described as rapidly growing and becoming a consumer staple, with survey data indicating that 80% of respondents view supplements as a necessity. This could sustain above-market revenue growth and upward pressure on the share price, rather than it remaining flat, which would positively impact revenue and earnings over the long term.
• Applied Nutrition is still only scratching the surface of a global opportunity across more than 85 countries. Continued expansion into regions such as Eastern Europe, Latin America, Asia and Canada via distributors and new retail channels may drive compounding international growth that pushes the valuation and share price higher, supporting long-term revenue and EBITDA growth.
• Significant ongoing investment in manufacturing capacity, including new production lines, higher warehouse capacity and automation that lifts effective sales capacity toward around GBP 300 million, may generate operating efficiencies and scalability benefits that expand margins and free cash flow, improving net margins and long-term earnings.
• Diversification into new product formats and categories, such as collagen stick packs, greens powders, beef protein and effervescent tablets, alongside successful innovation in areas like creatine hydration and sparkling protein water, could deepen customer engagement and broaden wallet share. This may drive structurally higher demand and support sustained growth in revenue and gross profit.
• Deepening multiyear joint business plans with major retailers like Holland & Barrett, strong channel diversification in U.K. grocery and High Street, and a growing D2C and subscription presence may increase recurring, higher quality revenue streams. This could enhance earnings visibility and potentially lead investors to re-rate the stock upward, improving valuation multiples and long-term earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £2.23 for Applied Nutrition based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.5, and the most bearish reporting a price target of just £1.9.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be £162.2 million, earnings will come to £33.3 million, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of £2.2, the analyst price target of £2.23 is 1.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.