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By ikedim
August 9, 2007

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Caveats: This one is too small for some of you - it currently has a market cap under $50M, though it does have average volume of close to $1M a day traded. This isn't a buy recommendation - do your own due diligence!

I think I remember Peter Lynch saying something like he'd rather buy a 30% grower at 30x earnings than a 10% grower at 10x earnings. On the other hand, how about a 30% grower at 10x earnings? And in a pretty recession-resistant business with decent secular growth prospects to boot?

The business: mainly medical foam rubber products and accessories (why am I reminded of Hank Hill's propane and propane accessories?). It occurs to me that the demand for these is unlikely to be much affected by the ability of John Q. Hedgefund to float subprime paper. Also that long-range demand looks pretty good thanks to the graying and subsequent groaning of America.

Operating income for the last three fiscal years ending 9/30/2006,05,04: $4.0M, $3.1M, $2.3M

Operating income for the subsequent three quarters, YOY gain:
6/30/2007: $1.8M, +77%
3/31/2007: $1.7M, +123%
12/30/2006: $1.5M, +40%

Over the past couple of months I've noticed some exceedingly weird stock price movements in many individual stocks, and this is one prime example. The stock price rallied strongly starting in April, probably because they announced a special $5/share dividend. It then became quite choppy for the next few months - I suspect this is because it made it onto one of the IBD mo-mo screens. It hit a high of almost 31 on July 9. Subsequently, on no news other than the blowout earnings report released on July 24 (this is the 6/30/2007 line above), it has had a modest haircut of roughly 50% to the current level of 16 and change. While there certainly may be more short-term pain in store, this does seem to me like it might be a decent price to pay for a share of the business.


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