I first heard about Zicam from a pharmacist when I felt a cold coming on. He said it was a gel I could put inside my nostrils and that it would knock out my cold. I cynically ambled over to the aisle containing a little bottle with a pointed tip. "Actually shortens the cold!" it promised on the label. I sniffed. Four hours later, my symptoms were gone. Later, I heard Rush Limbaugh recount an almost identical experience to mine on the air. The amazing thing was the manufacturer wasn't even a sponsor. My next thought was: Are these guys public?
It turns out that Zicam is made by Matrixx Initiatives
All that is great, but some people believe there's a fly in their ointment. Over the years, some users have complained that certain Zicam products caused them to lose their sense of smell. They sued, and the company, which still believes that the claims are unfounded, entered into a settlement totaling $8.5 million (pretax) last year. It killed earnings.
True, there's some risk here. There are still people claiming that they've paid through the nose (literally and figuratively) to use these products, and maybe they're right. But the stock, which traded as high $26 about a year ago, is now trading around $17. That implies a P/E (based on a 2007 EPS street consensus of $1.05) of a little more than 16 times for a company whose growth has recently been 35%, not to mention that most companies in its sector typically command PE multiples closer to 20 times 2007 EPS estimates. Further, there have been several recent successes on the legal front, and management indicates that the legal expenses are coming down.
I wouldn't bet the entire farm on this stock, but for a few bucks on the side, it certainly passes the sniff test to me. Earnings are due to be released on Feb. 12. The company is expected to post a loss for the fourth quarter, but that's pretty much reflected in the stock, so I'd buy before then.
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Fool contributor Buddy Howard, who just got over a cold, does not own shares of the companies mentioned.