Vita Life Sciences (ASX:VLS) is a small company but has attracted some investors with big clout. Despite its size, it is one of the top quality stocks on the ASX with a Quality score of 98 and ranks as a compounding growth stock with profits having increased by almost four times over the last five years.
Vita Life Sciences is involved in the formulation, packaging, sales and distribution of vitamins and supplements throughout Australia and South East Asia. Their main brands include Herbs of Gold and VitaHealth. They pride themselves on producing high quality health products and have received a number of awards recognising this.
Founded in Singapore, their biggest market now is Australia following the acquisition of Herbs of Gold in 2001. The second largest market is Malaysia.
They listed on the ASX in 2007 and the share price has grown from around 16 cents to $2.26 today.
In previous articles I have referred to a screen that was devised by Stockopedia contributor Roland Head for selecting Quality compounding stocks. Vita is the smallest of the 11 ASX stocks that meet the criteria for this screen with a market capitalisation of $129 million. Since 2017 they have increased their net assets by 75%, net profit after tax by 218% and EPS by 209% in absolute terms.
The table below shows all of the criteria for the quality compounding screen. As can be seen, VLS exceeds all thresholds, often by sizable margins.
Criteria | Threshold | VLS |
QualityRank | 80 | 98 |
Long-term ROCE | 18% | 26.7% |
TTM ROCE | 15% | 27.6% |
Operating margin 5 yr avg | 10% | 15.9% |
Operating margin TTM | 10% | 16.2% |
Net margin 5 yr avg | 8% | 11.6% |
Net margin TTM | 8% | 12.2% |
OCF / EPS | 0.8 | 1.4 |
Avg FCF (long term) / Assets | 8% | 12.7% |
Sales CAGR 5 yr | 0% | 12.5% |
Sales TTM / Sales Prior TTM | 5% | 10.9% |
Debt to assets | <50% | 0.65% |
Interest cover | 10x | 100x |
The balance sheet for VLS is conservatively managed. They have no financial debt and $25 million of cash. Cash flow is strong with operating cash flow 1.4 times net profit and free cash flow is also consistently strong.
This strong cash flow enables them to pay healthy dividends. Dividends have been growing at a CAGR of 19% over the last five years,…
