A Whale of a Tale From Neptune Technologies

Offering earnings guidance above analyst expectations is obviously a bullish sign, as over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.

Earlier this month, biotech Neptune Technologies & Bioresources (Nasdaq: NEPT  ) , which makes personal health-care products from krill oil, said second-quarter sales were riding a tidal wave higher and would hit as much as $8 million, far ahead of the $6.3 million analysts had anticipated and some 74% greater than what it recorded last year.

Now, don't go blindly buying on its bullish report -- you still need to do some research. Use the announcement as a jumping-off point for additional research.

Neptune Technologies snapshot

Market Cap $233 million
Revenues, TTM $22 million
1-Year Stock Return 31.1%
Return on Investment NA
Estimated 5-Year EPS Growth NA
Dividend and Yield NA/NA
Recent Price $4.68
CAPS Rating (out of 5) *

High aspirations
If you're at all familiar with the tiny crustacean krill, it's probably as the feedstock for whales, seals, and other sea life, but Neptune Resources says that even better than fish oil, krill is a major source of polyunsaturated fatty acids, offers a complete range of amino acids, and contains antioxidants. Its extraction process allows it to produce krill oil that it can infuse into dietary supplements and functional foods. Apparently, even television's Dr. Oz thinks krill oil is better than fish oil.

As much of a tiny niche business as this appears, it's one that's quite cutthroat having Neptune and its rivals launching broadsides -- and patent litigation -- against one another. But Neptune, having gained patent protection here in the U.S., has the upper hand at the moment though competitors like Norwegian krill producer Aker Biomarine are challenging its issuance. Neptune has other legal battles being waged as well with the likes of Schiff Nutrition, both of which have leveled accusations against each other for failing to hold up their end of a distribution agreement.

Because it deals in supplements and nutraceuticals, Neptune doesn't have the same FDA oversight as Amarin (Nasdaq: AMRN  ) , which makes fish oil therapy Vascepa or GlaxoSmithKline's (NYSE: GSK  ) Lovaza. But it also means it has to fight the marketing muscle these larger, better-financed companies bring to bear.

It did get a lift when a Canadian TV show touted the benefits of krill oil, which when put up against studies like one conducted at McMaster University and another in Greece that dispute the healthful effects of omega-3 fish oil supplements, seem to make the case for Neptune growing further. Yet that might be saying too much, since the studies didn't include krill oil, and if what they're saying is true about fish oil (and that's not necessarily the case), then it might apply just as much to what Neptune is peddling.

A few nutritional companies have had a rough go of it lately, with short sellers critiquing the operation of Nu Skin Enterprises (NYSE: NUS  ) and investors fretting that hedge fund operator David Einhorn would launch an attack on Herbalife (NYSE: HLF  ) . Any question about the specific value of krill oil or its purveyors would cause Neptune to flounder.

Shooting out the lights
Stock touts point to the success Amarin has had to suggest Neptune can or will enjoy similar results, but the market doesn't work that way. Although Neptune is expanding capacity to meet demand, I find the stock much too speculative to recommend it as an investment. Certainly the Motley Fool CAPS community is dead set against it, with almost 85% of those rating it thinking it can't possibly beat the broad market averages. I've also rated it to fall short of beating the Street, believing the run-up it's enjoyed provides a good entry point to see it retrace its steps, but let me know in the comments box below if you think Neptune Technologies & Bioressources can reel in greater growth still, or will it become just another fisherman's tale about the one that got away?

Raise your sights
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Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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  • Report this Comment On September 26, 2012, at 9:28 AM, skipolack wrote:

    There are no studies that show that krill oil is better than or equal to fish oil. Until then, it looks like Neptune is trying to climb aboard the AMRN train, with no data to support their claims about krill oil. I'll keep my money in AMRN.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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