It's been a wild year for Nutraceutical (NASDAQ:NUTR) shares, which have traveled all the way from $10 a year ago to $27 earlier this summer and now back to $14. If you're guessing that the performance of the business hasn't been quite as wild, you're right on the money. In fact, the overall performance of the business has been quite solid as the company continues its mission of consolidating the nutritional supplement industry.

With revenues up 17% through the first nine months of this year and profits up only 9%, it's pretty clear that it's not lack of growth that has pulled Nutraceutical back; rather, the nasty rising cost devil has made himself at home.

In Nutraceutical's case, the devil is selling, general, and administrative expenses. Those expenses can cover a multitude of items, but the company's explanation of rising shipping (fuel), legal, insurance, and corporate governance costs makes sense. That last item I read as Sarbanes-Oxley, which has created challenges for many small firms, and we probably haven't heard the last of the Sarbanes-Oxley cries this year. At the top end of the income statement, things look better as gross margins are improving for the seventh straight year.

In the future, there is the possibility that Nutraceutical can recoup some of the cost pressures via price increases. Nutraceutical deals with smaller specialized customers as opposed to the Wal-Marts (NYSE:WMT), Targets, (NYSE:TGT), and Aholds (NYSE:AHO) of the world. On the other hand, the supplement industry is highly fragmented, which leaves plenty of competitors eager to snatch up market share. Instead, the best path back to higher margins is probably the less glamorous one that management has laid out, which is to control these nasty selling, general, and administrative expenses as much as possible.

Looking beyond the income statement to the balance sheet shows a much brighter picture. Nutraceutical's $3 million in cash and $9.5 million in debt looks bad, but it's a solid improvement over the $12.5 million in debt that was on the balance sheet last year. Further validating the company's debt strategy, a quick check of the cash flow statement shows that Nutraceutical generated more than enough free cash flow to pay down the debt. Instead, the decision was made to invest the cash in acquiring competitors. With raw materials and work in process increasing more rapidly than sales and finished goods are decreasing, the balance sheet also shows signs of positive inventory divergence.

With Nutraceutical having fallen from the Street's good graces, valuation is perhaps the most interesting part of the story. Nine months into the year, Nutraceutical is on track to match last year's free cash flow, and while the valuation is a bit higher than when Matt Richey profiled Nutraceutical a year ago, an enterprise value-to-free cash flow ratio of 10 is flat-out cheap. Particularly for a growing business with an improving balance sheet.

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Fool contributor Nathan Parmelee owns shares in Nutraceutical but none of the other companies mentioned.