Female Health Company (NASDAQ: FHCO), Solid play in Macro Trends
Female Health Company (NASDAQ: FHCO), Solid play in Macro Trends
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.
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An overlooked stock with some significant institutional holdings. Sounds like a signal for me to buy this stock. What you guys think?
Agreed. The investment is in its potential. Debt free and dividend paying are attractive incentives. Worth some research.
It seems like it has established a good niche for itself but I note this cautious statement in its year-end press release: “As noted in previous press releases, timing issues regarding the receipt and shipment of large orders can significantly impact the Company’s operating results, positively or negatively, illustrating the difficulty of providing specific revenue and operating income guidance,” added Parrish. “Management intends to provide general comments each quarter regarding the Company’s outlook, based on information available at the time. The female condom is the only product where use is initiated by women that provides dual protection against HIV/AIDs and unintended pregnancy. As a result we believe that following a record year in FY2012, the Company will experience continued revenue and operating income growth in fiscal 2013.” Although no Wall Street analyst appears to cover the company, I do see one projection for much lower EPS for FYE 9/30/13. I would have to get a better feel for all this before going further.
I like the fact that the company has a dividend and is debt-free, a great combination in this market. I would like to see the company establish a solid trend in margins before investing.
FHCO essentially has no competition, no debt, 75% ROE, 3.16% dividend, nearly 50% profit margins…this looks like a potential winner if I ever saw one.
What’s not to love?
The fact that there is limited competition in the sector does may FHCO very attractive.
I like the fact that it’s debt-free. I’ll be watching the stock closely.