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Forum - OTC BB (Absolute Health & Fitness In - AHFI)    Over the counter and BB stocks

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From: liltalk0 (Rep: 135)Date: 11/08/2004 08:52
Forum: OTC BB - Msg #2393 - List AHFI msgs No Thread (Rec: 0)
Recent Stock Price: $1.77
Target $10





Sales


Net Income


Earnings per Share


Market Value to Sales


EPS

2004(e)


$8,275,553


$1,686,658


$0.08


1.8x


6.3x

2005(e)


$23,500,000


$4,970,000


$0.16


0.6x


3.1x

2006(e)


$51,625,000


$13,500,000


$0.35


0.3x


1.0x
SUMMARY & INVESTMENT CONCLUSION

ABSOLUTE HEALTH & FITNESS has recently debuted in the stock market, selling at about six times last year's earnings per share

The physical fitness industry is highly fragmented and appears poised to consolidate amidst burgeoning consumer demand

AHFI's premier corporate objective is to not only participate in the fitness industry's consolidation but to lead it

Reflecting its existing fitness centers sales growth of 25% and 40% margins, plus several strategic business combinations, revenues and earnings are expected to at least double every year through 2006

Based on valuations analytically-derived from three highly recognized methods, we suggest target stock prices at $6/share in the next 30 days, $8/share by year end, and for long term holders --- $10- $15/share next year and beyond

To receive free information on our Featured Penny Stock : "AHFI - Absolute Health and Fitness", free e-mail updates and other investor packages & offers, complete our Contact Form.

Want to buy AHFI?
STOCK PRICE VALUATION TARGETS

Three methods have been deployed to derive a Target Valuation range for this Company: (i) PEG---Price / Earnings to Growth Ratio; (ii) Multiple of Sales Ratio; and (iii) Historical Market P/E valuation.

Absolute Health & Fitness is expected to grow at 100% per annum over the next 3 three years --- from 8 in Earnings Per Share (EPS) in 2003 (see EPS Model at end of this report), to 16 this year, 35 in 2005 and 75 in 2006. Applying a P/E of 50 on EPS growth of such magnitude, and transparency, produces a PEG of 0.5 (a ratio under 1.0 is deemed conservative by fundamental securities analysts). This translates into a LONG TERM target price of $12 / share (50 x $0.16 in EPS).

To derive a Nearer-Term target price, consider the multiple the market has assigned to Bally Fitness' (symbol: BFT) estimated earnings---after three years of losses. Applying current Bally's P/E of 16 to Absolute's estimated earnings of 16 yields a Nearer- Term target price of $3.00 per share, which forms the basis for the lower end price range target by this year's end.

The best multiple at which the fitness industry has ever been valued is three times sales, For AHFI, this means 3 times $51.6 million in forecast sales = $155 million / 29.7 million shares outstanding = $10 / share for a 6-month target price.

Finally, empirical studies of stock prices covering the past 75 years have determined that, on average, stocks sell for 16 times trailing EPS and 12 times forecast EPS. As Absolute Health begins to attract traders' coverage..if not research coverage..we suspect that these ratios will heavily influence early valuations in the stock market.

For AHFI, 16 times trailing EPS (of 8 ) equals $1.28 and 12 times forecast EPS (of 16 ) equals $1.92. Hence, over the next 3-4 months, a trading range of up to $8 / share seems reasonable. These Valuation Ranges establish Target Prices, summarized in this Table.

Table One: Target Price Ranges to 2005

Early Stage
(now through 12/30)


Mid-Stage
(2nd Qtr, 2005)


End Next Year
(2005)

$5.00 - $7.00


$8.00 - $10.00


$10.00 - $15.00

Look to subsequent updates on "AHFI - Absolute Health and Fitness including Press Releases from the company, complete our Contact Form to subscribe to AHFI's Investor database and keep up to date with the latest advancements by the company!
RECOMMENDATION TO INDIVIDUAL INVESTORS

For Individual Investors seeking significant near-term capital appreciation on a modest investment position, in an emerging growth company, a $2,000 to $10,000 investment in AHFI will buy up to 7,000 shares of stock at current prices. Given a minimum target price of $10 / share next year, this represents an extraordinary profit opportunity.

Even the $6 per share minimum target price expected at this year's end translates into a $4.40 / share capital gain --- or a potential gain of $12,000 on an initial $3,000 investment ($35,000 potential gain on a $9,000 initial investment).

For more aggressive Individual Investors, consider a $25,000 investment position, to purchase up to 15,000 shares. Based on a fourth quarter-2004 Exit Strategy of $6.00---the midpoint of the forecast range--- this position represents potential gains in excess of $80,000.

To receive free information on our Featured Penny Stock : "AHFI - Absolute Health and Fitness", free e-mail updates and other investor packages & offers, complete our Contact Form.
BUSINESS AND INDUSTRY ENVIRONMENT

Absolute Health & Fitness currently owns and operates 3 fitness centers in the Southeast, and expects to add another 8 centers via acquisition, resulting in a company generating revenues in excess of $10 million / year. A business combination with one other major fitness center operator is expected to more than double the Company's revenues to over $23 million this year, and increase the number of its operating Business Units to 24.

Physical fitness is an $11 Billion industry, though extremely fragmented. According to the Department of Commerce, there are approximately 8,000 exercise / fitness centers in the country with the seven companies listed in TABLE TWO below representing just over half of these units.

About half of these 8,000 physical fitness centers are owned / controlled by seven entities. The YMCA alone has 2,500 units. Another six companies own about 1,800 units. This means there are about 3,500 free-standing independent physical fitness centers in the country (with revenues approximating $4 Billion) that are owned and operated by "mom-and-pop" proprietors---basically, family-run enterprises at the local, if not neighborhood, level.

Absolute Health intends to amalgamate a number of these independent entities under one corporate umbrella..and in the process, lead a consolidation of this highly fragmented industry.

What would motivate an independent fitness center operator to become part of a larger corporation? To answer this question, we look at the micro-economics of that industry and outline the industry's Business Model as it exists today.

The vast majority of independent fitness center owners will be health enthusiasts.

From there, owners fall into two basic categories: (i) Individuals who are 50+ and use a lump sum to launch a fitness center locally1; and (ii) Individuals in their 20's---and who have usually relied on family- funds to launch the fitness center.

TYPICAL BUSINESS MODEL --- The average fitness center generates about $1.2 million in annual revenues, and enables the owner to gross between $150,000 and $200,000 in income. There is no Inventory to manage, Accounts Receivable is a minor concern, and the steady nature of the revenue stream means that financing is probably not a major issue.

Industry Business Models do not change frequently. Changing industry fundamentals requires a trigger of such enormous impact that existing Business Models no longer are commercially relevant---and this is the rationale that led to the genesis of Absolute Health & Fitness.

There are now 180 million people in the USA over the age of 30, or 61% of the population. The Baby Boomers, as a group, represent 76 million people. These are compelling demographics that taken together can force an industry to change the manner in which its services are provided.

The distinguishing feature between AHFI and the rest of the independents comprising the fitness industry is its intentional focus to consolidate the better-run fitness centers nationwide, especially those local entities with commanding market shares, and unite these units all under one company.

This is the primary reason AHFI became a public company --- in order to provide the "currency" to not only rapidly consummate acquisitions but in the process, enrich all shareholders in AHFI..including the former owners of the acquired fitness centers.

Indeed, AHFI's management expects to double the number of fitness centers under its corporate roof by the end of this year, primarily by acquisitions. As small as these acquisitions appear to be, the end result is that revenues shoot up to more than $50 million annually, with Earnings of $1.00 per share. Even a simple multiple of ten times earnings per share makes this potentially a $10.00 stock.

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