Is Female Health Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Female Health (NASDAQ: FHCO  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Female Health's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Female Health's key statistics:

FHCO Total Return Price Chart

FHCO Total Return Price data by YCharts.

Passing Criteria

3-Year* Change

Grade

Revenue growth >30%

63.8%

Pass

Improving profit margin

178%

Pass

Free cash flow growth >Net income growth

404.5% vs. 355.3%

Pass

Improving EPS

362.8%

Pass

Stock growth (+ 15%) <EPS growth

94.4% vs. 362.8%

Pass

Source: YCharts. * Period begins at end of Q2 2010.

FHCO Return on Equity Chart

FHCO Return on Equity data by YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

122.1%

Pass

Declining debt to equity

No debt

Pass

Dividend growth >25%

40%

Pass

Free cash flow payout ratio <50%

52.8%

Fail

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going
Female Health comes through with flying colors, missing out on a perfect score only due to an elevated free cash flow payout ratio, which has been in steady decline over the last three years -- we could see a perfect score in 2014. Over the past three years, Female Health's revenues and earnings have been increasing rapidly, and its share price has actually lagged this fundamental growth. This is a very strong performance, but can Female Health keep up its progress? Let's dig a little deeper to find out.

In 2011, an estimated 1.7 million people died due to HIV/AIDS and other sexually transmitted diseases, and more than 2.5 million new cases of HIV-infected people were reported. The U.S. government spent $28 billion in 2012 to fight HIV/AIDS through various health awareness campaigns and providing medical treatment to HIV-infected people. Many Asian and African countries have been affected, which has cost many lesser-developed countries in terms of economic growth and population health in recent years. However, the last decade has seen a drop in the number of new HIV infections around the world.

This is an opportunity for Female Health to help the world and to help its own financial health. The company's FC2 condom, which protects women from HIV/AIDS and other sexually transmitted diseases, is the only female condom approved by the Food and Drug Administration and the World Health Organization. Fool contributor Dan Newman notes that Female Health has distributed more than 20 million condoms and trained 10,000 health providers in South Africa to fight against HIV/AIDS. Over the next six years, the company plans to invest $14 million in promoting HIV/AIDS and reproductive education with the help of global agencies, which should reach more than 120 million women by 2020. Additionally, it will ramp up its stock-buyback program, buying back the remaining one-third shares of the company's stock.

Putting the pieces together
Today, Female Health has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Still in the dark about how Obamacare might affect you and your portfolio? Don't worry -- you're not alone. To help prepare investors for the massive changes coming to the American health care system, The Motley Fool created a special free report that makes this complex topic easily understandable. Download "Everything You Need to Know About Obamacare" and discover how the law may impact your taxes, health insurance, and investments. Click here for your free copy today.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2612722, ~/Articles/ArticleHandler.aspx, 7/25/2014 9:49:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement