TPS Trade Alert – February 17, 2016
Recommendation:
Buy The Female Health Company (NASD: FHCO) up to $1.75 per share.
The Opportunity:
Selling 500 million condoms isn’t that big a deal.
Selling 500 million female condoms is another story. The product has only been around since 1991, and after 25 years, awareness isn’t as high as you might think.
Used during intercourse, the female condom protects women by reducing the risk of sexually transmitted infections – including HIV – and unintended pregnancy.
What makes the female condom important?
It gives women control and choice. Women can protect themselves when their partner doesn’t use a male condom.
The ravages of AIDS may have vanished from the headlines. But the disease is far from under control.
AIDS is the world’s #1 cause of death for women between 15 and 44.
This is what drew our attention to a small company in Chicago that manufactures and markets female condoms.
The Female Health Company $FHCO has now shipped its flagship product, the FC2 Female Condom® to 144 countries.
Trade Rationale:
After years of lackluster performance, The Female Health Company is turning the corner.
Retooled strategies were launched in the summer of 2014 and we’re seeing the payoff.
The strategy has two components. One is an increased investment in sales and marketing, with a focus on global markets. The second is product diversification.
In October 2013, the stock traded at $9.91. A dividend suspension was not well received by investors, and over the past two years, the stock price has languished.
Today, $FHCO trades at $1.60.
For Fiscal 2016 Q1, unit sales are up 27% to 15.4 million.
Net revenue grew 24% to $8.2 million from $6.7 million.
And gross profit is up 41% to $5.4 million.
An Obamacare Bonus?
Right now, The Female Health Company focuses on global markets.
But the U.S. could soon take on greater importance. Female condoms are now reimbursable under The Affordable Care Act.
Right now, The Female Health Company is weighing the pros and cons of taking advantage of this by marketing products directly to consumers.
If so, there will be significant investments in marketing required, but the upside could prove to be lucrative.
Investment Risks:
Can The Female Health Company continue to build on Q1 momentum?
It’s all about sales. If there’s a slowdown or a setback, the stock could quickly head south.
Without demand, and distribution channels to meet demand, there’s trouble.
Chairman and CEO O. B. Parrish plays down this scenario.
“We believe long-term demand for female condoms continues to increase for two reasons. First, the global need for effective ways to prevent sexually transmitted infections, including HIV/AIDS, and unintended pregnancies continues to expand. And second, the organized advocacy on a gender equity basis by independent women’s and other groups for increased investment in and availability of female condoms continues to gain momentum.”
The company has delivered a 10-year compound annual unit sales growth rate of 16%.
Potential Return:
We are forecasting a 100% return in the next 18 months based on the firm’s proven ability to deliver double digital revenue growth and expanding marketing for its products.
If the direct to consumer initiative in the U.S. proves viable and is executed successfully, returns could be significantly higher.
Key Facts:
Company: The Female Health Company
Ticker: $FHCO
Recent Price: $1.60
Buy up to Price: $1.75
Market Cap: $46.45 million
Avg. Daily Volume (3 month): 152,608 shares
Chart:
Category: TPS Trade Alert
