Benj recently added an intriguing stock to his portfolio related to women’s health.
Female Health Co. was purchased in January at $1.36 (US) a share with an initial sell target of $6.84, far below the $10 level at which it traded at in 2013. This enterprise is a one-trick pony, as their sole product is a female condom. In one way, this isn’t so bad, as this outfit is the leader in the field. A company in India is ranked No. 2, albeit with questions about their quality control. That is important, as this is a sector in which product failure can have major consequences.
Besides lacking product diversification, there are other problems with this corporation. The accounts receivable has climbed quickly, with much of it owed from the government of Brazil, which doesn’t have the best credit rating right now. Oh, and CEO O.B. Parrish (who is also the founder), came back after the CEO he hired to replace him performed poorly. Mr. Parrish is 82 years old, albeit a youngster compared to 88-year-old secretary and director William R. Gargiulo Jr.. Of course, Warren Buffett and Charlie Munger still manage a darn successful ship, and their ages are similar.
One other difficulty: The company recently announced a $10 million (US) credit facility with BMO Harris Bank to replace a smaller one. The idea behind this debt is that the company is sourcing takeover candidates, which is an iffy proposition when the facility is secured by a lien on virtually all of the company’s assets. Definite risk here — those looking for safer pastures should avoid this entity, indeed.
What is there to like? Well, besides the aforementioned being numero uno, insiders are well vested, owning almost 24 percent. The company is profitable, although it should be recognized that earnings are lumpy from quarter to quarter. The past quarterly was boffo compared with the year before, with revenue up 24 percent to $8.2 million, gross profit up 41 percent and earnings per share up 67 percent to a nickel a share.
Since the product empowers women, groups such as the Washington-based Centre for Health and Gender Equity and Universal Access to Female Condoms in the Netherlands are very active in pushing the female prophylactic agenda. This has become even more timely with the spread of the Zika virus, which can be transmitted by sexual activity as well as by mosquitoes. This concern appears to be boosting the stock price.
FHCO’s condom is sold in more than 140 countries, including the United States, where it is now reimbursable under Obamacare. No prescription is required and those looking to purchase this item can look to Amazon and other sites for their needs. Soon it will be available through Wal-Mart.
Benj had a long conversation with Mr. Parrish and while mentioning that FHCO was seeking an acquisition to expand the merchandise line, he said that management was open to selling the company if the right bid came along. It is not a long stretch to imagine that a giant in the health-care field might want to broaden their offerings, and perhaps this outfit would suit their desires. The fact that during better days FHCO paid a dividend of 28 cents a year might attract a suitor who wishes to acquire an enterprise that can spin off cash. Currently there is no payout.