Investors looking for solid play in macro trends will find this stock interesting. Based in Illinois, The Female Health Company (NASAQ: FHCO) is a manufacturer and seller of FC2 female condom. FC2 provides dual protection against unwanted pregnancy and sexually transmitted infections, which includes Human Immunodeficiency virus and acquired immunodeficiency syndrome (HIV/AIDS). The product is approved by the United States Food and Drug Administration (FDA). This is already the second generation product of the company after it ceased production of FC1.
What is attractive about the stock is the potential it carries. According to the latest United Nations Population Fund, around 222 million women in developing countries have unmet need for family planning. This is equivalent to an estimated $4.1 billion to address the current needs and the increasing young population. The opportunity lies in creating an affordable and cost-effective product that would address the current needs of this market. Also, there is a strong demand for a product that offers dual protection against sexually transmitted diseases.
FHCO has the first mover advantage. Since the development of its flagship first generation product FC1, it has already maintained key relationships with global public health sector such as the World Health Organization, United Nations Population and United Nations and other non-governmental organizations. It is definitely easy for the company to improve on the current product and market other one. In addition to that, it still holds certain patents and rights over the previous product. As one of the front runners in this niche market, this is an important competitive advantage of the company over potential competitors. Despite the threat of competition, there is always enough for everyone.
Its historical financial track record is a proof of the company’s potential. For the last 5 years, sales have increased by 12.64% a year. This is higher than the overall industry revenue growth of 6.60%. Operating margins have also been stellar at 20.53%. Overall, this translates to impressive 5-year average net income growth of 30%. Moving forward, the company is expected to post better results. In fact, revenues have grown by 88% for the last 12 months and net income by 43%.
At present, the stock trades at 14.13 times and carries a dividend yield of 3.20%. While the stock is not dirt cheap, valuations are expected to compress with earnings continuing to expand. Dividends are also expected to be higher in the future as it has generated significant free cash and remain debt free. It has also returned cash to shareholders via its 2 million shares repurchase program.