Chattem saw particular strength from its Selsun Blue and Aspercreme lines. Total sales for the third quarter increased 3.1% compared with the same period a year ago. Low-single-digit revenue growth doesn't sound too thrilling. However, with the introduction of new products that include Selsun Salon and Icy Hot Pro-Therapy, the company expects revenues to pick up substantially over the next several quarters.
Accelerating top-line growth is good news for shareholders, since Chattem's strong operational performance will permit it to take full advantage of increased sales. Back in June, we commented on Chattem's strong brands and solid margins. In the latest period, gross margins remained high at 73%. Its stout operating profit margins improved further to 25.2%, compared with last year's level of 24.2%.
This stock is on an exceptional run: It has risen in value more than 700% since 2001. Shareholders may be wondering whether this is a good time to take some money off the table. Nine months into this fiscal year, its revenues are up 9%, but the company anticipates its full-year revenues will grow by only 8%, which suggests that there may be some temporary weakness in the quarter ahead.
But temporary is the key word.
Looking forward, Chattem estimates net sales will grow 20% to 25%, and earnings per share will grow 10% to 15% in 2006. This kind of growth, accompanied by its operational strength and manageable balance sheet, offers compelling reasons to hold.
If your stock keeps hitting three-pointers, it doesn't make much sense to pull out of the game. It's tough to bet against Chattem when it remains icy hot.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.